The Economic Survey of India, the illustrious document published ahead of every budget is a comprehensive analysis on the state of the economy with a blueprint on the way ahead.
In the Economic Survey of 2018-19 , Chief Economic Advisor Krishnamurthy V Subramanian envisioned the $5 trillion GDP dream highlighted by Finance Minister Nirmala Sitharaman and Prime Minister Narendra Modi. The survey also laid down the importance of private investment, MSMEs, data management, ramping up of judiciary, Swacch Bharat, inclusive growth and minimum wages.
It is the nature of every government to forget the lessons laid out in previous surveys when the new report is published. Ahead of the next economic survey, which will be released today, it might be useful to examine if the economy is close to achieving or addressing other factors highlighted in the last one.
$5 trillion economy
One of the key objectives highlighted in last year's survey —achieve a $5 trillion GDP in the next four years - seems to be a distant dream now given the six-and-a-half year low growth rate of 4.5 per cent last quarter and retail inflation rate of 7.35 per cent.
While laying down its ambitious goal, the survey had clearly stated that a sustained real growth rate of 8 per cent and an estimated inflation rate of 4 per cent is required to achieve this feat.
Private investment, exports and job creation are some of the suggestions outlined in the survey to achieve Prime Minister Narendra Modi's $5 trillion economy.
Perhaps the suggestion sums from the fact that personal consumption, private investment, government spending and net exports are the four key components of GDP.
Investment
Statistics indicate that neither private consumption nor investment has been looking up for the Indian economy in the past one year. According to Centre for Monitoring Indian Economy(CMIEC) data, private sector capex has not been looking up in the past year. The new projects' worth declined by 59 per cent in September 2019 compared to September 2018. The rise in the number of stalled projects, primarily due to lack of funds also reached a record high in September.
Hoping to start a virtuous cycle of investment, savings and growth, the Indian government took some significant initiatives--corporate tax cut, infusion of money through PSBs-- in August to boost public investment and thereby private investment.
The effect of these moves is yet to be tangibly felt in the economy.
Exports
The 2018-19 survey highlights the importance of an aggressive export strategy in an investment driven growth model. The December figures for exports showed a decline for the fifth consecutive month. Global headwinds affect our balance of trade to a great extent particularly due to oil imports. But a better policy with a diversified export base, tax neutrality, and limited protectionism can go a long way in boosting exports.
Eliminating dwarf MSMEs
Incentivizing Micro, Small & Medium Enterprises (MSMEs) has always been considered important in the Indian economy due to the huge job potential the sector holds and its share in GDP (around 30 per cent).
The Economic Survey of 2018-19 pointed out that India's MSME policy must be limited to raising infant firms to find a foothold and not focussed on incentivizing them to remain dwarfs, that is, inefficient and non-profitable. To unshackle MSMEs and thereby enable them to grow, all size-based incentives must have a sunset clause of less than ten years with necessary grand-fathering, the survey states.
The Confederation of Indian Industry(CII) recently recommended a turnover-based criterion to define an MSME to address the 'dwarfism' issue in the sector.
Recognising the importance of the sector, last fiscal the finance minister asked large corporations to expedite clearing dues worth ₹40,000 crore to MSMEs and also asked banks not to declare stressed assets of MSMEs as non-performing asset (NPA) till 31 March 2020.
However, only policy reforms along the lines suggested by Economic Survey can truly transform the MSME sector into a globally competitive one.
Minimum wages
“A simple, coherent and enforceable Minimum Wage System should be designed with the aid of technology as minimum wages push wages up and reduce wage inequality without significantly affecting employment,” the Economic Survey of 2018-19 noted. Despite labour reforms figuring as major factor in the Modi government's agenda for the economy, real wages in agricultural has seen a fall in the past year. Given this precarious situation, a large number of the population who lives just above the poverty line is likely to slip back into poverty.
Data privacy
Last year's survey indicated that there was a growing need to accumulate and harness 'big data' available across different platforms within the scope of 'privacy law'. The Data Privacy Bill which is meant to execute this task is currently tabled in the Parliament.
This bill has already raised apprehensions amongst the public on the extent to which the government will have access to their data.
Ramping up capacity of lower judiciary
According to the survey, a case clearance rate of 100 per cent (i.e. zero accumulation) can be achieved with the addition of merely 2,279 judges in the lower courts and 93 in High Courts even without efficiency gains.
Unfortunately, the shortage of judges and other staff in lower courts continue to burden the judiciary due to the tardy recruiting. In November 2019, the Supreme Court took stock of the situation and identified 5,000 vacancies for judicial officers and directed all the 24 high courts and 36 states and UTs to apprise it of remedial measures.
Sustainable energy
India with a per-capita energy consumption of about one-third of the global average will have to increase its per capita energy consumption at least 2.5 times to increase its real per capita GDP by $5000 per capita, in 2010 prices, to enter the upper-middle income group. Though the country has seen a spurt in energy-related infrastructure during the BJP government's previous tenure, India's electricity consumption fell last year. Falling consumer demand and purchasing power parity has had a significant influence in setting this surprising trend.
India still has a long way to go to achieve the objectives enlisted in the previous Economic Survey. While we await the latest blueprint for the Indian economy, the government should ensure that last year's survey does not fade to oblivion.