MACRO-ECONOMIC FRAMEWORK STATEMENT 2021-22 …

1 Statements of Fiscal Policy as required under the Fiscal Responsibility and Budget Management Act, 2003 i V i MINISTRY OF FINANCEBUDGET DIVISIONN irmala SitharamanMinister of FinanceFebruary, 2022 GOVERNMENT OF INDIATABLE OF CONTENTSSl. No. StatementsPage FRAMEWORK Statement2 Medium Term Fiscal Policy cum Fiscal Policy StrategyStatements(i)16 PREFACEThe Fiscal Responsibility and Budget Management (FRBM) Act, 2003 was enactedwith a view to provide a legislative FRAMEWORK for reduction of deficit and debt, of theCentral Government to a sustainable level so as to ensure inter-generational equity infiscal management and long term MACRO-ECONOMIC stability.

2 The FRBM Act, 2003 andthe FRBM Rules, 2004 made under the Act have come into force with effect from 5thJuly, FRBM FRAMEWORK mandated Central Government to limit the fiscal deficitupto three per cent of gross domestic product by the 31st March, 2021. It further providesthat, the Central Government shall endeavour to limit the General Government Debt to60 per cent of GDP and the Central Government Debt to 40 per cent of GDP, by 31stMarch, to the unprecedented nature of the CoVID-19 shock, on economic growthand other fiscal parameters, fiscal deficit was increased from per cent of GDP inBE 2020-21 to per cent of GDP in RE 2020-21.

3 Uncertainties caused by the pandemichave continued through 2021 into 2022. Due to increased development/ welfare-relatedexpenditures to contain the pandemic and to provide succour to the people, the fiscaldeficit target for RE 2021-22 is pegged at per cent of GDP as against per centof GDP in BE 2021-22 . In BE 2022-23, the fiscal deficit is projected at per cent ofGDP, which is lower than RE renewed growth momentum is evident from 1st Advance Estimates (7thJanuary, 2022) of GDP growth released by the Central Statistical Office (CSO). Accordingto which, India's real GDP is estimated to grow at per cent in FY document contains the MACRO-ECONOMIC FRAMEWORK STATEMENT , and Medium-term Fiscal Policy cum Fiscal Policy Strategy STATEMENT .

4 These Statements provide anassessment of the growth prospects of the economy and strategies of the governmentfor the ensuing financial year relating to taxation, expenditure, market borrowings andother liabilities. A STATEMENT explaining the reasons for deviation from the fiscal targetsand other obligations cast on the Central Government under this Act has also beenincluded. The Fiscal Policy Statements including STATEMENT explaining reasons fordeviation are hereby laid before both the Houses of the Parliament. (i)1 MACRO-ECONOMIC FRAMEWORK STATEMENT Overview of the CoVID-19 pandemic that broke out in early2020 continued to inflict health and economic shocksacross countries in 2021-22 with its resurgent Delta variant of CoVID-19 struck India in thebeginning of 2021-22 marking the onset of the secondwave.

5 Unlike the first wave, the second wave wasasynchronous in its onset across states and moreintense in its spread, entering the rural hinterland. Thesecond wave temporarily stalled the momentum ofeconomic recovery that India has been witnessingsince the second half of 2020-21, besides adding tohealth challenges. However, the economic impact ofsecond wave was muted compared to that of the firstwave. After the peaking of second wave in mid-May2021, the economy swiftly rebounded in secondquarter of 2021-22 as also reflected in revival of keyhigh frequency indicators such as GST collections,power consumption, PMI Manufacturing and Services,rail freight and port activity.

6 Aiding the swift recoverywas India s rapid progress in vaccination startingJanuary 2021 that helped contain the sequentialdecline in momentum due to second wave. Latestreadings of key high frequency indicators furthersuggest robust recovery momentum in Oct-Decquarter of the asynchronous nature of the secondwa ve , Ind ia s pol ic y r es po nse c ons ti tut ed adifferentiated, state-level policy response in closecoordination with the Central Government for rapidrebooting of health infrastructure and effectiveimplementation of Test, Track, Treat, Vaccinate andCoVID-appropriate behaviour . Further, Governmentannounced a relief package of Rs lakh crore inJune 2021 to combat the second wave, strengthenpublic health system and provide impetus foreconomic growth and employment.

7 The packageincluded provision of safety nets for vulnerablehouseholds and small businesses and a host of supplyside measures. Safety nets included extension ofPradhan Mantri Garib Kalyan Yojana (PMGKY) andAatma Nirbhar Bharat Rozgar Yojana (ANBRY)besides additional fertilizer subsidy. Supply sidemeasures included provisions for public health care,loan guarantee scheme for CoVID-19 affected sectors,expansion of Emergency Credit Line GuaranteeScheme (ECLGS), Credit Guarantee Scheme forMicro Finance Institutions, Scheme for Tourism sectorworkers, boost for Project Exports through National1 Export Insurance Account (NEIA), assistance forBroadband to each Village through BharatNet PPPM odel, and Rs 3 lakh crore for Reform-Based Result-Linked Power Distribution Scheme.

8 Several otherreforms were initiated for Public Sector Banks thatfo cus se d o n t ec h-e nab le d, sim pl ifi ed, a ndcollaborative banking. Government also initiated ninestructural reforms, five procedural reforms plus reliefmeasures for the Telecom Service Providers. Further,Government is implementing Production LinkedIncentive (PLI) schemes in 14 key sectors that havebeen specifically designed to attract investments insectors of core competency and cutting-edgetechnology; ensure efficiency and bring economiesof size and scale in the manufacturing sector andmake Indian manufacturers globally augment productive capacity of theeconomy in the medium term, Government provideda large fiscal stimulus in the form of capitalexpenditure.

9 In line with the 2021-22 Budget s steepin cre ase of 34 .5 per cen t i n o utl ay, Ce ntr alGovernment stepped up public capital expenditure inApr-Nov 2021 by per cent over the correspondingperiod of the last year and 28 per cent overcorresponding 2019-20 levels. The Capex spendingwas and continues to be focused on Railways, Roadtransport and highways, and Housing and UrbanAffairs sectors crucial for industrial turnaround, andincluded in the National Infrastructure , to utilize inter-ministerial synergies ininfrastructure sector, Government launched the GatiShakti Master Plan, bringing 16 Ministries includingRailways and Roadways together for integratedpl anni ng a nd c oor dina ted imp leme ntat ion ofinfrastructure connectivity projects.

10 The infrastructurean d con ne cti vi ty pus h hav e far -r eac hi ngconsequences for medium to long-term growth andemployment per the first Advance Estimates of annualnational income released by the National StatisticalOffice (NSO), India s real GDP is estimated to growby per cent in 2021-22 , as compared to acontraction of per cent in 2020-21. With this, theeconomy stands to recover per cent of the pre-pandemic output of 2019-20. This is further supportedby strong rebound seen in several high frequencyindicators in Q3: 2021-22 and rapid progress invaccination the demand side, the recovery has beenbroad based.