For second year running, the Economic Survey was written under the cloud of the Covid-19 pandemic. These have been difficult times for the world economy. It is not just about the immediate disruptions and uncertainty caused by repeated waves of the pandemic, but also the longer-term uncertainty about the post-Covid world due to accelerated shifts in technology, consumer behaviour, supply-chains, geo-politics, climate change and a host of other factors. Not only are these individual factors difficult to forecast, the impact of their interactions are fundamentally unpredictable.
The theme of this Economic Survey, therefore, relates to the art and science of policymaking under conditions of extreme uncertainty. The default mode of policy-making in India and most of the world has traditionally been to rely on a pre-determined “Waterfall” approach – an upfront analysis of the issue, detailed planning and finally meticulous implementation. This is the framework that underpins five-year plans and rigid urban master-plans. The problem is that the real world is a complex and unpredictable place buffeted by all kinds of random shocks and unintended consequences. The response of traditional economics was to create ever more detailed plans/regulations, and elaborate forecasting models despite more than adequate evidence that this did not improve outcomes. In his Nobel Prize acceptance speech, economist Friedrich Hayek dubbed this “The Pretence of Knowledge”.
This Economic Survey sets out to explain the alternative “Agile” approach that informed India’s economic response to the Covid-19 shock. This framework is based on feed-back loops, real-time monitoring of actual outcomes, flexible responses, safety-net buffers and so on. Planning matters in this framework but mostly for scenario analysis, identifying vulnerable sections, and understanding policy options rather than as a deterministic prediction of the flow of events. The last Economic Survey did briefly discuss this approach, but this time it is a central theme. Some form of feedback loop based policy-making was arguably always possible, but the Agile framework is particularly relevant today because of the explosion of real-time data that allows for constant monitoring. Such information includes GST collections, digital payments, satellite photographs, electricity production, cargo movements, internal/external trade, infrastructure roll-out, delivery of various schemes, mobility indicators, to name just a few. Some of them are available from public platforms but many innovative forms of data are now being generated by the private sector. Short-term policy responses, therefore, can be tailored to an evolving situation rather than what a model may have predicted.
The same recognition of uncertainty informs the longer-term supply-side strategy: the combination of policies that encourage economic flexibility through innovation, entrepreneurship and risk-taking on one hand, and simultaneously invests in resilient infrastructure, social safety-nets and macro-economic buffers on the other. Thus, it is hoped that readers will be able to see the links between seemingly disparate policies ranging from deregulation, process simplification, privatization, foreign exchange reserves accumulation, inflation-targeting, housing-forall, green technology, the Insolvency and Bankruptcy Code, health insurance for the poor, financial inclusion, infrastructure spending, direct benefit transfers and so on. They are all about protection from or taking advantage of an uncertain future.
In FY 2012-13 , the Survey was presented as two volumes: Volume 1 had a number of chapters addressing topical policy concerns, while Volume 2 carried the traditional Economic Survey along with the statistical appendix. This format was continued till last year with the length of document steadily going up. Moreover, an attempt was made in the last three Surveys to ensure that the Volume 1 chapters adhered to a broad theme rather than appeared as stand-alone papers. The Economic Survey 2020-21 consisted of 335 pages in Volume 1, 368 pages in Volume 2 and a statistical appendix of 174 pages – a total of 877 pages!
The Economic Survey has gone through a great deal of evolution over the decades. The two volume format did allow space for bringing in new ideas and themes but, at almost 900 pages, it was also becoming unwieldy. It was also felt that the thematic chapters of Volume 1 were not adequately linked to the sectoral chapters of Volume 2.
Therefore, this year’s Survey reverts to a single volume plus a separate volume for the Statistical Appendix. Along with the sectoral chapters, a new chapter has been added that demonstrates the use of satellite and geo-spatial images to gauge various economic phenomenon – urbanization, infrastructure, environmental impact, farming practices and so on. The idea of having a separate volume for the statistical appendix is to give it a distinct identity as the one-stop source of authentic data. It is hoped that it will evolve in the next few years to include new kinds of socio-economic data in line with the emphasis on a feedback loop approach.