The Economic Survey 2019-20 was presented today, a day before the Union Budget. The Economic Survey 2019-20 has been prepared by the Chief Economic Advisor (CEA) Krishnamurthy V. Subramanian. The theme of Economic Survey 2019-20 is- “Enable markets, promote ‘pro-business’ policies and strengthen ‘trust’ in the economy“.

Economic Survey 2019-20 cover page

The Survey taps into ancient texts like Kautilya’s ‘Arthashastra’, Thiruvalluvar’s ‘Thirukural’ and treatise on modern economics like Adam Smith’s ‘An Inquiry into the Nature and Causes of the Wealth of Nations’ to emphasize upon the importance of ‘Ethical Wealth Creation’ as the root of economic activity and key to India becoming a $ 5 trillion economy by 2025. The Survey cover also conveys a synthesis of the ‘Old’ and ‘New’ with the lavender of the new Rs. 100 note coming together with the older one.

The Economic Survey 2019-20 comes in two volumes: Volume I and II. Let’s have a look at the key highlights:

Volume I

Chapter 1: Wealth Creation: The Invisible Hand Supported by the Hand of Trust

The Survey lays stress on the importance of bringing an openness in the market that leads to wealth creation, in turn, boosting the economic activity through increased investment. According to the Survey, this ‘Invisible Hand of the Market’ supported by the hand of ‘Trust’ has led to such dominance in the past. The Survey provides contemporary evidence of these two factors coming into play when in the post-economic liberalization era, because of the induced creative destruction, Indian economy returned to a high growth trajectory.

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• Introducing the idea of trust as a public good, which gets enhanced with greater use.
• Provide equal opportunities for new entrants.
• .Survey suggests that policies must empower transparency and effective enforcement using data and technology

Chapter 2: Entrepreneurship and Wealth Creation at the Grassroots

• Entrepreneurship as a strategy to fuel productivity growth and wealth creation – India ranks third in the number of new firms created, as per the World Bank.
• New firm creation in India increased dramatically since 2014: 12.2 % cumulative annual growth rate of new firms in the formal sector during 2014-18, compared to 3.8 % during 2006-2014 and 1.24 lakh new firms created in 2018, an increase of about 80 % from about 70,000 in 2014.
• The survey notes that grassroots entrepreneurship is not just driven by necessity.
• A 10 per cent increase in registration of new firms in a district yields a 1.8 % increase in Gross Domestic District Product (GDDP).
• The survey suggests that enhancing the ease of doing business and implementing flexible labour laws can create maximum jobs and will increase the trust of new entrepreneurs to emerge rapidly, especially in the manufacturing sector.

Chapter 3: Pro-Business versus Pro-Crony

• Survey says that India’s aspiration of becoming a $5 trillion economy depends critically on: Promoting ‘pro-business’ policy that unleashes the power of competitive markets to generate wealth and Weaning away from ‘pro-crony’ policy that may favour specific private interests, especially powerful incumbents.
• Viewed from the lens of the Stock market, creative destruction increased significantly post-liberalisation: Before liberalisation, a Sensex firm expected to stay in it for 60 years, which decreased to only 12 years after liberalisation. Every five years, one-third of Sensex firms are churned out, reflecting the continuous influx of new firms, products and technologies into the economy.
• Despite impressive progress in enabling competitive markets, pro-crony policies destroyed value in the economy: An equity index of connected firms significantly outperformed the market by 7 % a year from 2007 to 2010, reflecting abnormal profits extracted at common citizens’ expense. In contrast, the index underperforms the market by 7.5 % from 2011, reflecting inefficiency and value destruction inherent in such firms.
• Pro-crony policies such as discretionary allocation of natural resources till 2011 led to rent-seeking by beneficiaries while the competitive allocation of the same post-2014 ended such rent extraction. It also ed to wilful default, wherein promoters collectively siphoned off wealth from banks, led to losses that dwarf subsidies for rural development.

Chapter 4: Undermining Markets: When Government intervention hurts more than it helps

• Government intervention, though well-intended, often ends up undermining the ability of the markets to support wealth creation and leads to outcomes opposite to those intended.
• Economic Survey 2019-20 suggests that:

1. 1. The government must systematically examine areas of needless intervention and undermining of markets, but it does not argue that there should be no Government intervention.
   2. Instead, it suggests that the interventions that were apt in a different economic setting may have lost their relevance in a transformed economy.
   3. Eliminating such instances will enable competitive markets spurring investments and economic growth.

Chapter 5: Creating jobs and growth by specializing in network products

• By integrating “Assemble in India for the world” into Make in India, India can:

1. 1. Raise its export market share to about 3.5 % by 2025 and 6 % by 2030.
   2. Create 4 crore well-paid jobs by 2025 and 8 crores by 2030.

• India’s exports increased by 13.4 % for manufactured products and 10.9 % for total merchandise.
• Imports increased by 12.7 % for manufactured products and 8.6 per cent of total merchandise.
• India gained 0.7 % increase in trade surplus per year for manufactured products and 2.3 % per year for total merchandise.

Chapter 6: Targeting ease of doing business in India

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• A jump of 79 positions to 63 in 2019 from 142 in 2014 in World Bank’s Doing Business rankings.
• India still trails in parameters such as Ease of Starting Business, Registering Property, Paying Taxes and Enforcing Contracts.
• The turnaround time of ships in India has almost halved to 2.48 days in 2018-19 from 4.67 days in 2010-11.

Chapter 7: Golden jubilee of bank nationalisation: Taking stock

• The Economic Survey 2019-20 observes 2019 as the golden jubilee year of bank nationalization.
• Since 1969, India’s banking sector has not developed proportionately to the growth in the size of the economy.
• India has only one bank in the global top 100 –same as countries that are a fraction of its size.
• Solutions to make PSBs more efficient:

1. 1. Employee Stock Ownership Plan (ESOP) for PSBs’ employees.
   2. Creation of a GSTN type entity that will aggregate data from all PSBs and use technologies like big data, artificial intelligence and machine learning in credit decisions for ensuring better screening and monitoring of borrowers, especially the large ones.

Chapter 8: Financial fragility in the NBFC Sector

• The survey investigates the key drivers of Rollover Risk of the shadow banking system in India in light of the current liquidity crunch in the sector.
• Key drivers of Rollover Risk:

1. 1. Asset Liability Management (ALM) Risk.
   2. Interconnectedness Risk.
   3. Financial and Operating Resilience of an NBFC.
   4. Over-dependence on short-term wholesale funding.

• Survey computes a diagnostic (Health Score) by quantifying the Rollover risk for a sample of HFCs and Retail-NBFCs (which are representative of their respective sectors). The Health Score provides an early warning signal of impending liquidity problems.

Chapter 9: Privatization and wealth creation

• The survey examines the realized efficiency gains from privatization in the Indian context and bolsters the case for aggressive disinvestment of CPSEs.
• Strategic disinvestment of Government’s shareholding of 53.29 per cent in HPCL led to an increase of around Rs. 33,000 crores in national wealth.
• The survey suggested aggressive disinvestments of CPSEs to:

1. 1. Bring in higher profitability.
   2. Promote efficiency.
   3. Increase competitiveness.
   4. Promote professionalism.

Chapter 10: Is India’s GDP growth overstated? No!

• Models that by mistake over-estimate GDP growth by 2.7 % for India post-2011, can also measure wrong GDP growth over the same period for 51 out of 95 countries in the sample. Eg.: UK, Germany and Singapore.
• Concerns of a misestimated Indian GDP are unsubstantiated by the data and are thus unfounded.

Chapter 11: Thalinomics: The Economics of a plate of food in India

The Survey makes an attempt to relate economics to the common person using something that an individual encounter every day – a plate of food i.e., a Thali.

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• Absolute prices of a vegetarian Thali have decreased significantly since 2015-16 across India and the four regions; though the price has increased during 2019-20.
• Affordability of vegetarian and non-vegetarian Thalis improved by 29% and 18% respectively.

Volume II

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Chapter 1: State of the Economy in 2018-19: A Macro View

• India’s GDP growth moderated to 4.8 % in H1 of 2019-20, amidst a weak environment for global manufacturing, trade and demand.
• Current Account Deficit (CAD) narrowed to 1.5 % of GDP in H1 of 2019-20 from 2.1 % in 2018-19.
• Announcing the National Infrastructure Pipeline 2019-2025.
• 5 % GDP growth for 2019-20 based on CSO’s first Advance Estimates.
• Expeditious delivery on reforms for enabling the economy to strongly rebound in 2020-21.

Chapter 2: Fiscal Developments

• Gross GST monthly collections have crossed the mark of Rs. 1 lakh crore for a total of five times during 2019-20 (up to December 2019).
• Fiscal deficit of states within the targets set out by the FRBM Act.
• The survey notes that the General Government (Centre plus states) has been on the path of fiscal consolidation.

Chapter 3: External Sector

• India’s BoP (Balance of Payments) position improved from US$ 412.9 bn of forex reserves in end-March, 2019 to US$ 433.7 bn in end September 2019.
• Current account deficit (CAD) narrowed from 2.1% in 2018-19 to 1.5% of GDP in H1 of 2019-20.
• Foreign reserves stood at US$ 461.2 bn as on 10thJanuary, 2020.
• In sync with an estimated 2.9% growth in global output in 2019, global trade is estimated to grow at 1.0% after having peaked in 2017 at 5.7%. However, it is projected to recover to 2.9% in 2020 with a recovery in global economic activity.
• India’s merchandise trade balance improved from 2009-14 to 2014-19, although most of the improvement in the latter period was due to more than 50% decline in crude prices in 2016-17.

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• India’s top five trading partners continue to be USA, China, UAE, Saudi Arabia and Hong Kong.
• Largest export destinations in 2019-20 (April-November): United States of America (USA), followed by the United Arab Emirates (UAE), China and Hong Kong.
• Top import items: Crude petroleum, gold, petroleum products, coal, coke & briquettes.
• India’s imports continue to be the largest from China, followed by USA, UAE and Saudi Arabia.
• Under trade facilitation, India improved its ranking from 143 in 2016 to 68 in 2019 under the indicator, “Trading across Borders”, monitored by WorldBank in its Ease of Doing Business Report.
• Logistics Industry is currently estimated to be around US$ 160 billion and is expected to touch US$ 215 billion by 2020.
• According to the World Bank’s Logistics Performance Index, India ranks 44th in 2018 globally, up from 54th rank in 2014.
• Net FDI inflows continued to be buoyant in 2019-20 attracting US$ 24.4 bn in the first eight months, higher than the corresponding period of 2018-19.
• Net FPI in the first eight months of 2019-20 stood at US$ 12.6 bn.
• Net remittances from Indians employed overseas continued to increase, receiving US$ 38.4 billion in H1 of 2019-20 which is more than 50% of the previous year level.
• External debt remains low at 20.1% of GDP as of September 2019.

Chapter 4: Monetary Management and Financial Intermediation

• Monetary Policy remained accommodative in 2019-20.
• Repo rate was cut by 110 basis points in four consecutive MPC meetings in the financial year due to slower growth and lower inflation.
• Gross Non-Performing Advances ratio remained unchanged for Scheduled Commercial banks at 9.3% between March and September 2019. It Increased slightly for the Non-Banking Financial Corporations (NBFCs) from 6.1% in March 2019 to 6.3% in September 2019.
• Bank Credit growth (YoY) moderated from 12.9% in April 2019 to 7.1% as on December 20, 2019.
• Capital to Risk-weighted Asset Ratio of SCBs increased from 14.3% to 15.1% between March 2019 and September 2019

Chapter 5: Prices and Inflation

• Inflation witnessing moderation since 2014:

1. 1. Consumer Price Index (CPI) inflation increased from 3.7 per cent in 2018-19 (April to December 2018) to 4.1 per cent in 2019-20 (April to December 2019).
   2. WPI inflation fell from 4.7 per cent in 2018-19 (April to December 2018) to 1.5 per cent during 2019-20 (April to December 2019).

• Measures to safeguard farmers like procurement under Price Stabilisation Fund (PSF), Minimum Support Price (MSP) need to be made more effective.
• The volatility of prices for most of the essential food commodities with the exception of some of the pulses has actually come down in the period 2014-19 as compared to the period 2009-14.
• Rural inflation has been more variable across states than urban inflation.

Chapter 6: Sustainable Development and Climate Change

• India moving forward on the path of SDG implementation through well-designed initiatives: Himachal Pradesh, Kerala, Tamil Nadu, Chandigarh are front runners. Assam, Bihar and Uttar Pradesh come under the category of Aspirants.
• India hosted COP-14 to UNCCD which adopted the Delhi Declaration: Investing in Land and Unlocking Opportunities.
• Forest and tree cover of India is increasing and it reached 80.73 million hectares.
• International Solar Alliance (ISA).

Chapter 7: Agriculture and Food Management

• Largest Proportion of the Indian population depends directly or indirectly on agriculture for employment opportunities as compared to any other sector.
• GVA at Basic Prices for 2019-20 from ‘Agriculture, Forestry and Fishing’ sector is estimated to grow by 2.8 %.
• Agricultural productivity is also constrained by a lower level of mechanization in agriculture which is about 40 % in India, much lower than China (59.5 %) and Brazil (75 %).
• The livestock sector has been growing at a CAGR of 7.9 % during the last five years.
• During the last 6 years ending 2017-18, Food Processing Industries sector has been growing at Average Annual Growth Rate (AAGR) of around 5.06 % and constitutes as much as 8.83 % and 10.66 % of GVA in Manufacturing and Agriculture sector respectively in 2017-18 at 2011-12 prices.

Chapter 8: Industry and Infrastructure

• The industrial sector as per the Index of Industrial Production (IIP) registered a growth of 0.6 per cent in 2019-20 (April-November) as compared to 5.0 % during 2018-19 (April-November).
• Fertilizer sector achieved a growth of 4.0 % during 2019-20 (April-November) as compared to (-) 1.3 per cent during 2018-19 (April-November).
• Steel sector achieved a growth of 5.2 % during 2019-20 (April-November) as compared to 3.6 % during 2018-19 (April-November).
• Total telephone connections in India touched 119.43 crores as on September 30, 2019.
• The installed capacity of power generation has increased to 3, 64,960 MW as on October 31, 2019, from 3, 56,100 MW as on March 31, 2019.
• Report of the Task Force on National Infrastructure Pipeline released on 31.12.2019 has projected total infrastructure investment of Rs. 102 lakh crore during the period FY 2020 to 2025 in India.

Chapter 9: Services Sector

• The service sector comprises about 55 % of the total size of the economy and GVA growth.
• Two-thirds of the total FDI inflows into India with 38 per cent of total exports.
• More than 50 % of GVA in 15 out of the 33 states and UTs. Gross Value Added growth of the services sector moderated in 2019-20 as suggested by various high-frequency indicators and sectoral data such as air passenger traffic, port and shipping freight traffic, bank credit etc.

Chapter 10: Social Infrastructure, Employment and Human Development

• The expenditure on social services (health, education and others) by the Centre and States as a proportion of GDP increased from 6.2 % in 2014-15 to 7.7 % in 2019-20 (BE).
• India’s ranking in the Human Development Index improved to 129 in 2018 from 130 in 2017 with 1.34 % average annual HDI growth.
• The share of regular wage/salaried employees has increased by 5 percentage points from 18 % in 2011-12 to 23 % in 2017-18.
• A significant jump of around 2.62 crore new jobs with 1.21 crore in rural areas and 1.39 crore in urban areas in this category.
• Total formal employment in the economy increased from 8 % in 2011-12 to 9.98 % in 2017-18.
• Gender disparity in India’s labour market widened due to a decline in female labour force participation, especially in rural areas.
• Around 60 % of productive age (15-59) group engaged in full-time domestic duties.
• Access to health services inter-alia through Ayushman Bharat and Mission Indradhanush across the country has improved. Mission Indradhanush has vaccinated 3.39 crore children and 87.18 lakh pregnant women of 680 districts across the country.
• About 76.7 % of the households in the rural and about 96 % in the urban areas had houses of pucca structure.
• A 10 Year Rural Sanitation Strategy (2019-2029) launched to focus on sustaining the sanitation behaviour change and increasing access to solid and liquid waste management.