Wealth creation to Thalinomics: All you must know about Economic Survey '20

CEA Krishnamurthy Subramanian
Economic Survey for 2019-20 was tabled in Parliament today and projected the country’s gross domestic product (GDP) to grow between 6 – 6.5 per cent in financial 2020-21 (FY21). This, according to experts, is in sharp contrast to the GDP print of 4.5 per cent in the July – September quarter. The overarching theme, according to the Survey, is ‘wealth creation’ and the policy choices that enable the same.

“The Economic Survey 2020 projects a growth revival in FY21 but suggests that the government may have to incur expansionary policy to support growth. As has been argued earlier, the government has to prioritise growth. Once the momentum picks up, the government can take action to consolidate its expenses," said Rumki Majumdar, an economist at Deloitte India.

"The survey has emphasized on raising capital expenditure (and reducing revenue expenditure) that leads to asset creation. The massive infrastructure investment announced by the government earlier suggests that the government is already taking the necessary steps in that direction. However, a revival in tax revenue will be key to the government’s infrastructure spending plans and the survey has emphasized on buoyancy in GST, " she added.

Here are key takeaways from the Economic Survey for 2019-20

GDP growth: The survey pegs the GDP growth for FY21 between 6 – 6.5 per cent. The government expects a pick-up in economic activity in the second half of the fiscal on the back of improved foreign direct investment (FDI) flows, build-up of demand pressure, positive outlook for rural consumption, rebound of industrial activity, steady improvement in manufacturing, growth in merchandize exports, higher build-up of foreign exchange reserves and positive growth rate of goods and services tax (GST) revenue collection.

“The Government says that based on first Advance Estimates, India’s GDP growth for 2019-20 would be recorded at 5 per cent. This suggests an uptick in GDP growth in second half of 2019-20,” the Survey says.

Counter-cyclical fiscal measures: While the international sentiment continues to favour Indian economy, the Economic Survey suggests the need for counter-cyclical fiscal steps to boost demand. Economic Survey also adds a relaxing fiscal gap target to revive growth.

Wealth creation: The overarching theme of the Economic Survey 2019-20 is creation of wealth over time and the implementation of policies that act as enablers in creation of this wealth. "Wealth creation happens in an economy when the right policy choices are pursued. In fact, our traditional economic thinking has always emphasized enabling markets and eliminating obstacles to economic activity. At its core, policies seek to maximize social welfare under a set of resource constraints," the Survey says.

The survey augues that the Indian economy has created unprecedented wealth since the liberalisation of the economy in 1991 as measured by the rise in the S&P BSE Sensex, especially after 1999 when the index crossed the 5,000 mark for the first time ever. 

The survey divides this unprecedented growth post 1999 into three phases: Phase I from 1999 to 2007 that saw acceleration in the Sensex's growth, with each successive 5000-point mark taking lesser time to achieve. Phase II from 2007 to 2014 that marked a slowdown in the index’s growth and Phase III that started in 2014, which saw a revival in response to structural reforms.

Thalinomics: Here’s a new concept! The Survey aims to put a number what a common man pays for a decent meal, or a Thali as it is known in common lingo, across the country. The government says the absolute price of a vegetarian Thali has decreased significantly since 2015-16 across India and the four regions; though the price increased during 2019-20.

Post 2015-16, an average household gained close to Rs 11, 000 on average per year from the moderation in prices in the case of vegetarian Thali, the Survey says. An average household that consumes two non-vegetarian Thalis gained close to Rs 12, 000 on average per year during the same period.

"From 2006-07 to 2019-20, affordability of vegetarian Thalis improved 29 per cent, while affordability of non-vegetarian Thalis improved by 18 per cent," the Survey says

Consumption: Real consumption growth has recovered in Q2 of 2019-20, cushioned by a significant growth in government final consumption.

FDI, FPI investment: The net FDI and Net Foreign Portfolio Investment (FPI) in first eight months of 2019-20 stood at $24.4 billion and $12.6 billion respectively, higher than the inflows received in the corresponding period 2018-19. Net FPI inflow in the first half of 2019-20 stood at $ 7.3 billion as against an outflow of $ 7.9 billion in the previous corresponding period. 

Divestment: The Survey also suggests aggressive divestment on central public sector enterprises (CPSEs). The Government, it suggests, can transfer its stake in the listed CPSEs to a separate corporate entity, which entity would be managed by an independent board and would be mandated to divest the Government stake in these CPSEs over a period of time.

Inflation concerns: Inflation has been on the rise in 2019-20. CPI (headline) inflation was estimated at 3.3 per cent. However, there has been an uptick in headline inflation number in December 2019 to 7.35 per cent which was mainly contributed by supply side factors. The Wholesale Price Index (WPI) inflation, however, declined from 3.2 per cent in April 2019 to 2.6 per cent in December 2019, reflecting weakening of demand pressure in the economy.

Employment: The survey claims a rise in formal employment with 26.2 million jobs being created. There has been an increase in the share of formal employment, as captured by ‘Regular wage/salaried’, from 17.9 per cent in 2011-12 to 22.8 per cent in 2017-18, the Survey says. "As a result, in absolute terms, there was a significant jump of around 26.2 million new jobs over this period in the usual status category with 12.1million in rural areas and 13.9 million in urban areas," the Survey says.

The $5 trillion economy dream and public sector banks (PSBs): The Survey puts the onus of supporting the economy on the PSBs that account for 70 per cent of the market share in Indian banking. The Survey acknowledges that PSBs are inefficient compared to their peer groups on every performance parameter. In 2019, investment for every rupee in PSBs, on average, led to the loss of 23 paise, while in new private banks (NPBs) it led to the gain of 9.6 paise.

GST collection and bank credit: GST collection grew 4.1 per cent for the Centre during April-November 2019. Bank credit growth, on the other hand, that started decelerating in the second of 2018-19 continued in the first half of 2019-20 as well and was visible most in the services sector.


Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel