DYAL SINGH COLLGE

UNIVERSITY OF DELHI
SESSION 2025
GE – PUBLIC FINANCE IN INDIA
TOPIC

WRITE A NOTE ON MACROECONOMICS FRAMEWORK

OF UNION BUDGET 2021-22.

SUBMITTED TO:- SUBMITTED BY:-

ANIL KUMAR SIR RAHUL KUMAR
DEPPT. OF ECONOMICS B.A HISTORY HONORS
DYAL SINGH COLLEGE ROLL NO. 22/25076
UNIVERSITY OF DELHI SECTION B
SEMESTER 6TH

Overview of the Economy

The Indian economy was negatively impacted by an unprecedented
health crisis in 2020-21 with the highly contagious corona virus
(Covid-19) spreading across the country. In response to the
pandemic, Government has taken several proactive preventive and
mitigating measures starting with progressive tightening of
international travel, issue of advisories for the members of the
public, setting up quarantine facilities, contact tracing of persons
infected by the virus and various social distancing measures.
Government imposed a strict 21 days nationwide lockdown from
25th March, 2020, under the Disaster Management Act, 2005, with
subsequent extensions and relaxations, to contain the spread of
Covid-19 while ramping up the health infrastructure in the country.
The lockdown measures, imposed to contain the spread of Covid-19
pandemic in India, ubiquitously affected employment, business,
trade, manufacturing, and services activities. The real Gross Domestic
Product (GDP) growth is projected to contract by 7.7 percent in 2020-
21 as compared to a growth of 4.2 percent in 2019-20. GDP growth,
however, is expected to rebound strongly in 2021-22 owing to the
reform measures undertaken by the Government.
The Government announced a special economic and comprehensive
package under Atmanirbhar Bharat of ` 20 lakh crore - equivalent to
10 percent of India’s GDP – to fight the Covid-19 pandemic in India.
Several structural reforms announced as part of the package, inter
alia, include deregulation of the agricultural sector, change in
definition of MSMEs, new PSU policy, commercialization of coal
mining, higher FDI limits in defence and space sector, development of
Industrial Land/ Land Bank and Industrial Information System,
Production Linked Incentive Schemes, revamp of Viability Gap
Funding scheme for social infrastructure, new power tariff policy and
incentivizing States to undertake sector reforms. Apart from this,
various steps were taken to boost consumption which, inter alia,
includes cash payment in lieu of the Leave Travel Concessions (LTC)
scheme, One-time special Festival advance of ` 10,000 (interest-free)
for central Government employees. Other steps such as Interest-free
50- year loan to states, additional capital expenditure budget for the
central Government, launch of Emergency Credit Line Guarantee
Scheme (ECLGS) 2.0, `1.46 lakh crore boost for manufacturing
through Production-linked incentives for ten Champion Sectors, `
18,000 crores additional outlay for PM Awaas Yojana (PMAY) –Urban,
Equity infusion in National Investment and Infrastructure Fund (NIIF)
Debt Platform, Demand booster for Residential Real Estate Income
Tax relief for Developers & Home Buyers, Boost for Project Exports,
Capital and Industrial Stimulus has been initiated to support
economic growth.
ECONOMIC GROWTH
As per the first Advance Estimates of annual national income
released by the National Statistical Office (NSO), Real GDP is
estimated to contract by 7.7 percent in 2020-21, as compared to a
growth of 4.2 percent in 2019-20. This contraction in GDP growth is
mainly attributed to the contraction in industry and services sector.
The growth of Gross Value Added (GVA) at constant (2011-12) basic
prices is estimated to contract by 7.2 percent in 2020-21, as
compared to a growth of 3.9 percent achieved in 2019- 20. Positive
growth in real GVA in agriculture & allied sectors at 3.4 percent in
2020- 21 against 4.0 percent in PE of 2019-20 indicates resilience of
rural economic activity to the Covid-19 pandemic. From the demand
side, private consumption expenditure is estimated to contract at 9.5
percent in 2020-21 as against a growth of 5.3 percent in 2019-20 and
fixed investment is estimated to decline by 14.5 percent in 2020-21
as against 2.8 percent in 2019-20. Government consumption final
expenditure is estimated to grow at 5.8 percent in 2020-21 as against
11.8 percent in 2019-20. Exports and imports of goods and services
are estimated to contract at 8.3 percent and 20.5 percent (at
constant prices) respectively in 2020-21.
PRICES
Inflation based on Consumer Price Index-Combined (CPI-C) has
moderated from 5.9 percent in 2014-15 to 3.4 percent in 2018-19
and 4.8 percent in 2019-20. It averaged 6.6 percent in 2020-21 (Apr-
Dec) and stood at 4.6 percent in December 2020. Food inflation
based on Consumer Food Price Index (CFPI) declined from 6.4
percent in 2014- 15 to 0.1 percent in 2018-19 and recorded 6.7
percent in 2019-20. It averaged 9.1 percent in 2020-21 (Apr-Dec) and
stood at 9.5 percent in November 2020 but drastically declined to 3.4
percent in December 2020. Inflation measured in terms of Wholesale
Price Index (WPI) declined from 4.3 percent in 2018-19 to 1.7 percent
in 2019-20. It averaged (-) 0.1 percent in 2020-21 (Apr-Dec) and
stood at 1.2 percent in December 2020.
The Government constantly monitors the prices situation and has
taken number of measures from time to time to stabilize prices of
essential food items. These include appropriately utilizing trade and
fiscal policy instruments like import duty, Minimum Export Price,
export restrictions, etc., to regulate domestic availability and
moderate prices; imposition of stock limits and advising States for
effective action against hoarders and black marketers; and, provision
of higher Minimum Support Prices to incentivize farmers for
increasing production. Government also implements Price
Stabilization Fund (PSF) to help moderate the volatility in prices of
agri-horticultural commodities like pulses, onion, and potato. In the
wake of rising prices of pulses, onion and potato, the Government
has taken several steps to improve the availability of these
commodities and make them available to consumers at affordable
prices. These include: (i) Banning the export of onions with effect
from 14.09.2020, subsequently, revoked w.e.f 1.01.2021; (ii)
Imposition of stock limits on onion under the Essential Commodities
Act, 2020 w.e.f 23.10.2020 to 31.12.2020 to prevent hoarding; (iii)
Easing of restrictions on imports, issuance of licenses for imports and
reduction in import duties of pulses. These measures have resulted in
increased imports of onion, Tur dal and Masur dal in the country and
resultant cooling of prices.
For long term price stabilization, the Government has announced a
series of measures under the Atma Nirbhar Package viz; Operation
Greens project extended from TOP (Tomato, Onion and Potato) to all
fruits and vegetables (TOTAL) for better price realization of farmers,
reduced wastage and affordability of products for consumers;
establishing storage facilities in PPP mode to use irradiation
technology for food preservation to assist farmers; Essential
Commodities Act, 1955 amended to attract investments in storage
and warehousing.
CENTRAL GOVERNMENT FINANCES
The fiscal deficit and revenue deficit for 2020-21 were budgeted at
3.5 percent of GDP and 2.7 percent of GDP respectively. The BE 2020-
21 envisaged a tax to GDP ratio of 10.8 percent and total expenditure
to GDP ratio of 13.5 percent. The envisaged growth for Gross Tax
Revenue was 12 percent over 2019-20 Revised Estimates (RE). The
total expenditure in BE 2020-21 was estimated to increase by 12.7
percent over 2019-20 RE. However, the Covid-19 pandemic severely
affected the Government revenues, while exerting pressure to
increase Government Expenditure.
As per the data on Union Government Finances released by
Controller General of Accounts for April-November 2020, the Gross
Tax Revenue decreased by 12.6 percent over the corresponding
period of the previous year achieving 42.4 percent of the budget
estimate. The non-tax revenue declined by 46.6 percent during April-
November 2020, over the corresponding period of the previous year
achieving 32.3 percent of the budget estimate. At the end of
November 2020, the non-debt capital receipts stood at 8.1 percent of
the budget estimate.
During April- November 2020, fiscal deficit reached 135.1 percent of
the budgeted amount in 2020-21 higher relative to 114.8 percent of
the budget estimate during the corresponding period of the previous
year. The revenue deficit for AprilNovember 2020 is 139.9 percent of
the budget estimate and is higher than the corresponding figure of
128.4 percent in the previous year. The Revised Estimates place fiscal
and revenue deficits at 9.5 percent of GDP and 7.5 percent of GDP
respectively in 2020-21.
MONETARY MANAGEMENT AND FINANCIAL
INTERMEDIATION
Monetary policy remained accommodative during 2020. The
Monetary Policy Committee (MPC) of the Reserve Bank met five
times since March 2020. In view of the Covid-19 pandemic, the MPC
advanced its first two meetings of 2020-21 from first week of April to
end March and from first week of June to 20th May-22nd May. The
repo rate has been cut by 115 bps since March 2020, with 75 bps cut
in first MPC meeting in March 2020 and 40 bps cut in second meeting
in May 2020. The policy rates were kept unchanged in further
meetings, but the liquidity support was significantly enhanced.
During 2020-21, the growth of monetary aggregates witnessed
higher growth as compared to previous few years on account of
higher liquidity in the economy. In 2020- 21 so far, Reserve money
(M0) recorded a Year on Year (YoY) growth of 15.1 percent as on
January 1, 2021 as compared to 12.3 percent a year ago. Expansion
in M0 during 2020-21 so far was driven by currency in circulation
(CIC) from the component side. The growth of Broad Money (M3)
stood at 12.4 percent as on December 18, 2020, as compared to 10.4
percent in the corresponding period a year ago. Aggregate deposits
contributed the most in the growth of M3.
EXTERNAL SECTOR
Merchandise exports (customs basis) during 2020-21 (April-
December), were US$ 200.8 billion, which declined by 15.7 percent
over the level of US$ 238.3 billion in the corresponding period of the
previous year. During 2020-21 (April-December), merchandise
imports were US$ 258.3 billion, registering a decline of 29.1 percent
over the level of US$ 364.2 billion in corresponding period of the
previous year. Oil imports declined from US$ 96.7 billion in 2019-20
(April-December) to US$ 53.7 billion in 2020- 21 (April-December).
Merchandise trade deficit improved from US$ 125.9 billion in 2019-
20 (April-December) to US$ 57.5 billion in 2020-21 (April-December).
The average monthly exchange rate of rupee (RBI's reference rate)
was ` 74.66 per US dollar in 2020-21 (April-December), as compared
to ` 70.11 per US dollar during 2019-20. As compared to end-March
2020, there was a decrease in external debt of US$ 2.0 billion, which
stands at US$ 556.2 billion as at end-September, 2020. However, the
external debt to GDP ratio stands at 21.6 percent as at end-Sept,
2020, as against 20.6 percent as at end-March, 2020.
BANKING AND NON-BANKING SECTOR
Bank credit growth was 6.1 percent as on December 18, 2020 as
compared to 7.1 percent in the corresponding period of the previous
year. The non-food credit growth (YoY) was 5.6 percent in October
2020, as compared with a growth of 8.3 percent in October 2019.
The moderation in credit growth in 2020-21 was witnessed in mostly
all the sectors, barring services.
Gross Non-Performing Advances (GNPA) ratio (i.e. GNPAs as a
percentage of Gross Advances) of Scheduled Commercial Banks
decreased from 8.2 percent at the endMarch 2020 to 7.5 percent at
end-September 2020. Restructured Standard Advances (RSA) ratio of
Scheduled Commercial Banks (SCBs) increased from 0.36 percent to
0.41 percent during the same period. Overall, the Stressed Advances
ratio of SCBs decreased from 8.6 percent at the end of March 2020 to
7.9 percent at end- September 2020. GNPA ratio of Public Sector
Banks (PSBs) decreased from 10.25 percent at the end-March 2020
to 9.4 percent at the end-September 2020 and the Stressed Advances
ratios decreased from 10.75 percent at end-March 2020 to 9.96
percent at end-September 2020. However, this has to be seen in
conjunction with the asset classification relief provided to borrowers
on account of Covid-19.
NON BANKING FINANCIAL SECTOR
Total assets of NBFCs had increased from `23.41 lakh crore in March
2018 to `29.23 lakh crore in March 2019, and further to `33.91 lakh
crore in March 2020, resulting in an annual growth of 16.01 percent
during 2019-20 as compared with 24.86 percent in 2018-19. There is
an observable shift in the sources of funding of NBFCs. Banks’ total
exposure to NBFCs increased from `7.01 lakh crores in March 2019 to
`8.04 lakh crores in March 2020, and further to `8.17 lakh crores in
June 2020.
AGRICULTURE
In 2019-20 (as per Fourth Advance Estimates), total food grain
production in the country is estimated at 296.65 million tonnes
which is higher by 11.44 million tonnes than the production of food
grain of 285.21 million tonnes during 2018-19. Rice production
during 2019-20 is estimated at 118.4 million tonnes as compared to
116.5 million tonnes in 2018-19. Wheat production during 2019-20 is
estimated at 107.6 million tonnes as compared to 103.6million
tonnes during 2018-19. Government has increased Minimum
Support Prices (MSP) for all mandated kharif, rabi and other
commercial crops. The enhanced MSP ensures a return of 1.5 times
overall India weighted average cost of production for the season
2020-21.
Milk production in the country has increased from 146.3 million
tonnes (2014-15) to 198.4 million tonnes (2019-20). The per capita
availability of milk is at 412 grams per day in (2019-20). The egg
production in the country also increased from 103318 million in
2018-19 to 114419 million in 2019-20. The fish production in India
has reached an alltime high of 14.07 million metric tons during 2019-
20. Overall, the Fisheries sector of India has sustained an impressive
average annual growth rate of over 10 percent from 2014-15 to
2018-19.The agricultural credit flow target for the year 2019-20 was
fixed at `13,50,000 crore and against this target the achievement was
`13,92,469.81 crore. The agriculture credit flow target for 2020-21
has been fixed at `15,00,000 crore and till 21st October, 2020 against
this target a sum of `6,95,360.82 crore has been disbursed.
INDUSTRY
The performance of the industrial sectors based on the Index of
Industrial Production (IIP) comprising mining, manufacturing and
electricity registered a growth of (-) 0.8 percent in 2019- 20 as
compared to 3.8 percent in 2018-19. As per the sectoral
classification, mining, manufacturing and electricity sectors
registered 1.6 percent, (-) 1.4 percent and 1.0 percent growth during
2019-20 respectively. Among the use-based categories, primary
goods, capital goods, intermediate goods, infrastructure/construction
goods, consumer durables goods and consumer non-durables goods
have attained 0.7 percent, (-) 13.9 percent, 9.1 percent, (-) 3.6
percent, (-) 8.7 percent and (-) 0.1 percent growth respectively in
2019-20. The cumulative growth of IIP during April-November 2020-
21 is (-) 15.5 percent as compared to 0.3 percent during April-
November 2019-20.
The eight core infrastructure supportive industries, viz. coal, crude
oil, natural gas, refinery products, fertilizers, steel, cement and
electricity that have a total weight of nearly 40 percent in the Index
of Industrial Production (IIP) grew by 0.4 percent in 2019- 20 as
compared to 4.4 percent in 2018-19. The production of refinery
products, fertilizers, steel and electricity increased by 0.2 percent, 2.7
percent, 3.4 percent and 0.9 percent respectively during 2019-
20while the production of coal, crude oil, natural gas and cement fell
by 0.4 percent, 5.9 percent, 5.6 percent and 0.9 percent respectively
during the same period. The cumulative growth of eight core
industries during April-November 2020-21 is (-) 11.4 percent as
compared to 0.3 percent during April- November 2019-20.