What is Economic Survey?
The Department of Economic Affairs, Finance Ministry of India presents the Economic Survey in the parliament every year, just before the Union Budget. It is prepared under the guidance of the Chief Economic Adviser, Finance Ministry. It is the ministry’s view on the annual economic development of the country. A flagship annual document of the Ministry of Finance, Government of India and Economic Survey reviews the developments in the Indian economy over the previous 12 months, summarizes the performance on major development programs, and highlights the policy initiatives of the government and the prospects of the economy in the short to medium term.
The Economic Survey 2019 has been tabled in the parliament on July 04, 2019. This is Narendra Modi government’s first Economic Survey in second tenure. Economic Survey 2019 will be tabled by Finance Minister Nirmala Sitharaman.
The Economic Survey 2019-20 has been prepared by the new Chief Economic Advisor KV Subramanian. “Looking forward with excitement to table my first – and the new Government’s first – Economic Survey in Parliament… #EcoSurvey2019,” CEA KV Subramanian said on his Twitter account.
Economic survey 2019 can be downloaded from a direct link of Press Information Bureau (PIB) – Click Here
Key Highlights of the Economic Survey – 2019
1. Shifting gears: Private Investment as the Key Driver of Growth, Jobs, Exports and Demand
- As per the Economic Survey 2019, the pathways for drop opened up in the last five years; and benefits of growth and macroeconomic stability reached to the bottom.
- Sustained real GDP growth rate of 8 percent is needed for a USD 5 trillion economy by 2024-25.
- Virtuous Cycle of savings, investment and exports supported by a favorable demographic phase is required for sustainable growth.
- Private investment is the key driver for demand, capacity, labor productivity, new technology, creative destruction and job creation.
- Survey views the economy as being either in a virtuous or a vicious cycle or never in equilibrium.
Key ingredients for a self-sustaining Virtuous Cycle
- Presenting data as a public good
- Emphasizing legal reforms
- Ensuring policy consistency
- Encouraging behavior change using principles of behavioral economics
- Nourishing MSMEs to create more jobs and become more productive
- Reducing the cost of capital
- Rationalizing the risk-return trade-off for investments
Policy for Real People, Not Robots: Behavioral Economics of “Nudge”
- Decisions by real people diverge from impractical robots theorised in classical economics
- Behavioral economics provides insights to push or nudge people towards desirable behavior
- Key principles of behavioral economics: Emphasizing the beneficial social norm; changing the default option; and Repeated reinforcements.
Survey calls to create an aspirational agenda for social change by using insights from behavioral economics:
- From ‘Beti Bachao Beti Padhao’ to ‘BADLAV’ (Beti Aapki Dhan Lakshmi Aur Vijay Lakshmi)
- From ‘Swachh Bharat’ to ‘Sundar Bharat’
- From ‘Give it up” for the LPG subsidy to ‘Think about the Subsidy’
- From ‘Tax evasion’ to ‘Tax compliance’
Here, “Dwarfs” refer to the firms having less than 100 workers despite being over 10 years old. These dwarf firms account for over 50 percent of all organised firms in manufacturing. Their contribution to employment is only 14 percent and just 8 percent to productivity.
• Large firms with more than 100 employees account for 75 percent employment and around 90 percent to productivity. These large MSMEs firms account for just 15 percent of the total organised sector by number.
• Survey throws light upon the growth of the MSME sector for achieving greater profits, boosting job creation and enabling enhanced productivity.
• Survey also focuses on tourism, hotel & catering, transport, real estate, entertainment sectors etc., for job creation.
• It calls for enabling MSMEs to grow by way of:
A sunset clause of less than 10 years for all size-based incentives
– Deregulating labor law restrictions to create more jobs
– Re-calibrating Priority Sector Lending (PSL) guidelines for direct credit flow to young firms
Creation of Data “Of the People, By the People, For the People
- At present, society’s consumption of data is at the optimum level, given the technological advances.
- This data is generated by the people; thereby, Government too can create data as public good, ensuring data privacy.
- Government must intervene in creating data for the good of the people, especially for poor and social sectors.
- Ending Matsyanyaya: Ways to ramp up the Lower Judiciary to clear backlog
- Matsyanyaya: The idea of government in India was based on a theory called the Matsyanyaya, literally meaning the “law of fish” or the “law of the jungle.” Why should there be governments in the world at all?
- In short, it refers to a Governance where strong prevails over the weak.
- The Government is facing the biggest hurdles in name of contract enforcement and clearance resolution while working towards the ease of doing business and higher GDP growth in India.
- Around 87.5 percent of the total pending cases are in the District and Subordinate courts.
- 100 percent clearance rate can be achieved by just recruiting to fill in 2279 vacancies in the lower courts and 93 in High Courts.
- Uttar Pradesh, Bihar, Odisha and West Bengal need special attention.
- The backlog can be cleared with just 25 percent productivity improvements in lower courts, 4 percent in High Courts and 18 percent in Supreme Court.
How does Policy Uncertainty affect Investment?
India has witnessed significant reduction in Economic Policy Uncertainty over the last one decade. Considering that the uncertainty dampens investment growth India for about five quarters, the Survey proposes reduction in economic policy uncertainty by:
• Consistency of actual policy with forward guidance
• Quality assurance certification of processes in Government departments
From Swachh Bharat to Sundar Bharat via Swasth Bharat
• 93.1 percent of the households have access to toilets and 96.5 percent of those with access to toilets are using them in rural India.
• 100 percent Individual Households Latrine (IHHL) Coverage in 30 states and UTs
• Now, environmental and water management issues need to be incorporated in the Swachh Bharat Mission (SBM) for sustainable improvements in the long-term.
Inclusive Growth through Affordable, Reliable and Sustainable Energy
• India requires 2.5 times increase in per capita energy consumption to increase its real per capita GDP by USD 5000 at 2010 prices to enter the upper-middle income group.
• 4 times increase in per capita energy consumption is needed to achieve 0.8 Human Development Index score.
• India presently stands at 4th in wind power, 5th in solar power and 5th in renewable power installed capacity.
• Thermal power still plays a dominant role at 60 percent share
• Market share of electric cars is only 0.06 percent in India while it is 2 percent in China and 39 percent in Norway. India needs faster access to fast battery charging facilities to increase the market share of electric vehicles
Effective Use of Technology for Welfare Schemes like MGNREGS
• Survey depicts boost in efficiency of MGNREGS with use of technology that has led to significant reduction in delays in the payment of wages with adoption of NeFMS and DBT.
• Demand and supply of work under MGNREGS increased.
• Vulnerable sections such as women, SC and ST workforce increased under MGNREGS during economic distress.
Minimum Wage System to be redesigned for Inclusive Growth
• Survey proposes redesigning of Minimum Wage System for protecting workers and alleviating poverty
• India has 1,915 minimum wages for various scheduled job categories across states
• 1 in every 3 wage workers is not protected by the minimum wage law
• Survey proposes minimum wages to all employments/workers
• Government will soon notify ‘National Floor Minimum Wage’, varying across five geographical regions.
• States will fix the Minimum wages at levels not lower than the ‘floor wage’.
• It proposes ‘National level dashboard’ under the Ministry of Labour & Employment for regular notifications on minimum wages.
State of the Economy in 2018-19: A Macro View
• GDP to grow at 7 percent in 2019-20 due to growth of investment & consumption
• India’s share in world service exports increased from 2 percent in 2005 to 3.5 percent in 2017
• India’s foreign exchange reserves are placed at USD 422.2 billion in June 2019
• India still holds the top position of the fastest growing major economy in 2018-19.
• GDP Growth Rate moderated to 6.8 percent in 2018-19 from 7.2 percent in 2017-18.
• Inflation was at 3.4 percent in 2018-19
• Non-Performing Assets (NPAs) as percentage of Gross Advances reduced to 10.1 percent at end December 2018 from 11.5 percent at end March 2018.
• Growth in fixed investment grew to 10.0 percent in 2018-19
• Current account deficit was manageable at 2.1 percent of GDP
• Fiscal deficit declined from 3.5 percent of GDP in 2017-18 to 3.4 percent in 2018-19.
• 2018-19 closed with fiscal deficit at 3.4 per cent of GDP
• Total Central Government expenditure fell by 0.3 percentage points in 2018-19.
Money Management & Inflation
• Banking system improved with the decline in the NPA ratios.
• Insolvency and Bankruptcy Code led to recovery and resolution of significant amount of distressed assets.
• As per RBI reports, banks received Rs 50,000 crore from previously non-performing accounts.
• Repo Rate first hiked by 50 bps and later reduced by 75 bps in 2018.
• Inflation continued to decline for fifth straight financial year and remained below 4 percent.
• Food inflation based on Consumer Food Price Index (CFPI) also continuing on its declining trend and remained below 2 percent.
• Housing and fuel are the main contributors of inflation based on CPI-C during FY 2018-19
Sustainable Development and Climate Change
• India’s SDG Index Score ranges between 42 and 69 for States and between 57 and 68 for UTs
• Kerala and Himachal Pradesh are the front runners with a score of 69 amongst states. Chandigarh and Puducherry are the front runners with a score of 68 and 65 respectively among the UTs.
• Namami Gange Mission was launched for achieving the SDG 6 with a budget outlay of Rs 20,000 crore.
• A comprehensive National Clean Air Programme (NCAP) was launched in 2019 as a pan India time bound strategy for prevention, control and abatement of air pollution.
Agriculture and Food Management
• Gross Value Added (GVA) in agriculture improved from -0.2 percent in 2014-15 to 6.3 percent in 2016-17 but decreased to 2.9 percent in 2018-19.
• Gross Capital Formation (GCF) in agriculture declined to 15.2 percent in 2017-18 as compared to 15.6 percent in 2016-17.
• Women’s participation in agriculture increased to 13.9 percent in 2015-16 from 11.7 percent in 2005-06.
• 89 percent of groundwater extracted is used for irrigation.
• Policies should focus on Dairying as India is the largest producer of milk; Livestock rearing; Fisheries sector as India is the second largest producer.
Industry and Infrastructure
• India’s ranking improved by 23rd to 77th position in 2018 among 190 countries assessed by the World Bank Doing Business (DB) Report 2019.
• Road construction grew at 30 km per day in 2018-19.
• Rail freight and passenger traffic grew by 5.33 percent and 0.64 percent respectively in 2018-19.
• Total telephone connections in India touched 118.34 crore in 2018-19.
• Public Private Partnerships are ideal for addressing infrastructure gaps
• Building sustainable and resilient infrastructure was given due importance with programmes such as SAUBHAGYA scheme, PMAY etc.
• Services sector contributed more than half of GVA growth in 2018-19.
• IT-BPM industry grew by 8.4 percent in 2017-18 to USD 167 billion.
• The services sector growth declined marginally to 7.5 percent in 2018-19.
• The sectors that saw growth were Financial services, real estate and professional services.
• The sectors that saw decline were Hotels, transport, communication and broadcasting services.
Health & Education
• Government expenditure on Health increased to 1.5 percent in 2018-19 from 1.2 percent in 2014-15.
• Government expenditure on Education increased to 3 percent in 2018-19.
• Affordable and quality healthcare being provided through National Health Mission and Ayushman Bharat scheme.