The Economic Survey of India is the flagship annual document of the Ministry of Finance, Govt of India. It is prepared under the guidance of the Chief Economic Adviser of India. This document is presented to both Houses of Parliament during the Budget Session. The first Economic Survey of India was presented in 1950-51 as part of the Union Budget. After 1964 it was separated from the Budget and presented each year during the Budget Session before the presentation of the budget. The document is non-binding.
The Union Minister for Finance & Corporate Affairs, Smt. Nirmala Sitharaman presented the Economic Survey 2019-20 in the Parliament on January 31, 2020. Krishnamurthy V. Subramanian is the Chief Economic Adviser of Ministry of Finance, Government of India.
We will present Highlights of the Economic Survey in PART 1, 2 and 3:
Largest Proportion of Indian population depends directly or indirectly on agriculture for employment opportunities as compared to any other sector.
The share of agriculture and allied sectors in the total Gross Value Added (GVA) of the country has been continuously declining on account of relatively higher growth performance of non-agricultural sectors, a natural outcome of development process.
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 lower level of mechanization in agriculture which is about 40 % in India, much lower than China (59.5 %) and Brazil (75 %). · Skewed pattern of regional distribution of agricultural credit in India: o Low credit in Hilly, Eastern and North Eastern states (less than 1 % of total agricultural credit disbursement). · Livestock income has become an important secondary source of income for millions of rural families: o An important role in achieving the goal of doubling farmers’ income. o Livestock sector has been growing at a CAGR of 7.9 % during last five years. · During the last 6 years ending 2017-18, Food Processing Industries sector has been growing: o Average Annual Growth Rate (AAGR) of around 5.06 % o Constitutes as much as 8.83 % and 10.66 % of GVA in Manufacturing and Agriculture sector respectively in 2017-18 at 2011-12 prices. · While interests of the vulnerable sections of the population need to be safeguarded, Survey emphasizes on sustainability of food security operations by: o Addressing the burgeoning food subsidy bill. o Revisiting the rates and coverage under NFSA.
Industry and Infrastructure
The industrial sector as per 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 crore 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.
Services Sector
Increasing significance of services sector in the Indian economy:
About 55 % of the total size of the economy and GVA growth.
Two-thirds of total FDI inflows into India.
About 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.
On the bright side, FDI into services sector has witnessed a recovery in early 2019-20.
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 Human Development Index improved to 129 in 2018 from 130 in 2017: o With 1.34 % average annual HDI growth, India is among the fastest improving countries
Gross Enrolment Ratio at secondary, higher secondary and higher education level needs to be improved.
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 decline in female labour force participation especially in rural areas: o 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 behavior change and increasing access to solid and liquid waste management.
Sustainable Development and Climate Change
India moving forward on the path of SDG implementation through well-designed initiatives
SDG India Index: o Himachal Pradesh, Kerala, Tamil Nadu, Chandigarh are front runners. o 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.
COP-25 of UNFCCC at Mandrid: o India reiterated its commitment to implement Paris Agreement. o COP-25 decisions include efforts for climate change mitigation, adaptation and means of implementation from developed country parties to developing country parties.
Forest and tree cover: o Increasing and has reached 80.73 million hectare. o 24.56 % of the geographical area of the country.
Burning of agricultural residues, leading to rise in pollutant levels and deterioration of air quality, is still a major concern though the total number of burning events recorded reduced due to various efforts taken.
International Solar Alliance (ISA) o ‘Enabler’ by institutionalizing 30 Fellowships from the Member countries. o ‘Facilitator’ by getting the lines of credit worth US$ 2 Billion from EXIM Bank of India and 1.5 Billion from AfD, France. o ‘Incubator’ by nurturing initiatives like the Solar Risk Mitigation Initiative. o ‘Accelerator’ by developing tools to aggregate demand for 1000 MW solar and 2.7 lakh solar water pumps.
The Economic Survey of India is the flagship annual document of the Ministry of Finance, Govt of India. It is prepared under the guidance of the Chief Economic Adviser of India. This document is presented to both Houses of Parliament during the Budget Session. The first Economic Survey of India was presented in 1950-51 as part of the Union Budget. After 1964 it was separated from the Budget and presented each year during the Budget Session before the presentation of the budget. The document is non-binding.
The Union Minister for Finance & Corporate Affairs, Smt. Nirmala Sitharaman presented the Economic Survey 2019-20 in the Parliament on January 31, 2020. Krishnamurthy V. Subramanian is the Chief Economic Adviser of Ministry of Finance, Government of India.
We will present Highlights of the Economic Survey in PART 1, 2 and 3:
GDP growth is a critical variable for decision-making by investors and policymakers. Therefore, the recent debate about accuracy of India’s GDP estimation following the revised estimation methodology in 2011 is extremely significant.
As countries differ in several observed and unobserved ways, cross-country comparisons have to be undertaken by separating the effect of other confounding factors and isolating effect of methodology revision alone on GDP growth estimates.
Models that incorrectly over-estimate GDP growth by 2.7 % for India post-2011 also misestimate GDP growth over the same period for 51 out of 95 countries in the sample.
Several advanced economies such as UK, Germany and Singapore have their GDPs misestimated with incompletely specified econometric model.
Correctly specified models that account for all unobserved differences and differential trends in GDP growth across countries fail to find any misestimating of growth in India or other countries.
Concerns of a misestimated Indian GDP are unsubstantiated by the data and are thus unfounded.
Thalinomics: The Economics of a Plate of Food in India
An attempt to quantify what a common person pays for a Thali across India.
A shift in the dynamics of Thali prices since 2015-16.
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.
Post 2015-16: Average household gained close to Rs. 11, 000 on average per year from the moderation in prices in the case of vegetarian Thali. 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 %. Affordability of non-vegetarian Thalis improved by 18 %.
India’s Economic Performance in 2019-20
India’s GDP growth moderated to 4.8 % in H1 of 2019-20, amidst a weak environment for global manufacturing, trade and demand.
Real consumption growth has recovered in Q2 of 2019-20, cushioned by a significant growth in government final consumption.
Growth for ‘Agriculture and allied activities’ and ‘Public administration, defense, and other services’ in H1 of 2019-20 was higher than in H2 of 2018-19.
India’s external sector gained further stability in H1 of 2019-20:
Current Account Deficit (CAD) narrowed to 1.5 % of GDP in H1 of 2019-20 from 2.1 % in 2018-19.
Impressive Foreign Direct Investment (FDI).
Rebounding of portfolio flows.
Accretion of foreign exchange reserves.
Sharper contraction of imports as compared to that of exports in H1 of 2019-20, with easing of crude prices.
Headline inflation expected to decline by year end:
Increased from 3.3 % in H1 of 2019-20 to 7.35 % in December 2019-20 due to temporary increase in food inflation.
Rise in CPI-core and WPI in December 2019-20 suggests building of demand pressure.
Deceleration in GDP growth can be understood within the framework of a slowing cycle of growth:
Financial sector acted as a drag on the real sector (investment-growth-consumption).
Reforms undertaken during 2019-20 to boost investment, consumption and exports:
Speeding up the insolvency resolution process under Insolvency and Bankruptcy Code (IBC).
Easing of credit, particularly for the stressed real estate and NBFC sectors.
Announcing the National Infrastructure Pipeline 2019-2025.
Survey expects an uptick in the GDP growth in H2 of 2019-20:
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.
Fiscal Developments
Revenue Receipts registered a higher growth during the first eight months of 2019-20, compared to the same period last year, led by considerable growth in Non-Tax revenue.
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).
Structural reforms undertaken in taxation during the current financial year:
Change in corporate tax rate.
Measures to ease the implementation of GST.
Fiscal deficit of states within the targets set out by the FRBM Act.
Survey notes that the General Government (Centre plus States) has been on the path of fiscal consolidation.
External Sector
Balance of Payments (BoP):
India’s BoP 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 10th January, 2020.
Global trade:
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 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.
India’s top five trading partners continue to be USA, China, UAE, Saudi Arabia and Hong Kong.
Exports: Top export items: Petroleum products, precious stones, drug formulations & biologicals, gold and other precious metals.
Largest export destinations in 2019-20 (April-November): United States of America (USA), followed by United Arab Emirates (UAE), China and Hong Kong.
The merchandise exports to GDP ratio declined, entailing a negative impact on BoP position.
Slowdown of world output had an impact on reducing the export to GDP ratio, particularly from 2018-19 to H1 of 2019-20.
Growth in Non-POL exports dropped significantly from 2009-14 to 2014-19.
India’s imports continue to be largest from China, followed by USA, UAE and Saudi Arabia.
Merchandise imports to GDP ratio declined for India, entailing a net positive impact on BoP.
Large Crude oil imports in the import basket correlates India’s total imports with crude prices. As crude price raises so does the share of crude in total imports, increasing imports to GDP ratio.
Significant Gold imports also correlate India’s total imports with gold prices. However, share of gold imports in total imports remained the same during 2018-19 and the first half of 2019-20, despite an increase in prices, possibly due to increase in import duty that reduced the import of gold.
Non-POL-non-gold imports are positively correlated with GDP growth.
Non-POL-non-oil imports fell as a proportion to GDP from 2009-14 to 2014-19 when GDP growth accelerated.
This may be because of consumption driven growth while investment rate declined, lowering non-POL-non-gold imports.
Continuous decline in investment rate decelerated GDP growth, weakened consumption, dampened the investment outlook, which further reduced GDP growth and along with it non-POL-non-gold imports as a proportion of GDP from 2018-19 to H1 of 2019-20.
Under trade facilitation, India improved its ranking from 143 in 2016 to 68 in 2019 under the indicator, “Trading across Borders”, monitored by World Bank in its Ease of Doing Business Report.
Logistics industry of India:
Currently estimated to be around US$ 160 billion.
Expected to touch US$ 215 billion by 2020.
According to 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 at end September, 2019.
After significant decline since 2014-15, India’s external liabilities (debt and equity) to GDP increased at the end of June, 2019 primarily by increase in FDI, portfolio flows and external commercial borrowings (ECBs).
Repo rate was cut by 110 basis points in four consecutive MPC meetings in the financial year due to slower growth and lower inflation.
However, it was kept unchanged in the fifth meeting held in December 2019.
In 2019-20, liquidity conditions were tight for initial two months; but subsequently it remained comfortable.
The Gross Non Performing Advances ratio:
Remained unchanged for Scheduled Commercial banks at 9.3% between March and September 2019
Increased slightly for the Non-Banking Financial Corporations (NBFCs) from 6.1% in March 2019 to 6.3% in September 2019.
Credit growth:
The financial flows to the economy remained constrained as credit growth declined for both banks and NBFCs.
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.
Prices and Inflation
Inflation Trends:
Inflation witnessing moderation since 2014
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).
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).
Drivers of CPI – Combined (C) inflation:
During 2018-19, the major driver was the miscellaneous group
During 2019-20 (April-December), food and beverages was the main contributor.
Among food and beverages, inflation in vegetables and pulses was particularly high due to low base effect and production side disruptions like untimely rain.
Cob-web Phenomenon for Pulses:
Farmers base their sowing decisions on prices witnessed in the previous marketing period.
Measures to safeguard farmers like procurement under Price Stabilisation Fund (PSF), Minimum Support Price (MSP) need to be made more effective.
Divergence Between Retail and Wholesale price:
Observed for essential agricultural commodities in four metropolitan cities of the country from 2014 to 2019.
Divergence particularly high for vegetables like onion and tomato. This may be due to the presence of intermediaries and high transaction costs.
Volatility of Prices: o 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. o Lower volatility might indicate the presence of better marketing channels, storage facilities and effective MSP system.
Regional variations: o CPI-C inflation has been highly variable across States ranging between (-)0.04 per cent to 8.1 per cent across States/UTs in financial year (FY) 2019-20 (April-December). o In most states, CPI-C inflation in rural areas is lower than the CPI-C inflation in urban areas o Rural inflation has been more variable across states than urban inflation.
Inflation dynamics: o Convergence of headline inflation towards core inflation as per the CPI-C data from 2012 onwards.
The Economic Survey of India is the flagship annual document of the Ministry of Finance, Govt of India. It is prepared under the guidance of the Chief Economic Adviser of India. This document is presented to both Houses of Parliament during the Budget Session. The first Economic Survey of India was presented in 1950-51 as part of the Union Budget. After 1964 it was separated from the Budget and presented each year during the Budget Session before the presentation of the budget. The document is non-binding.
The Union Minister for Finance & Corporate Affairs, Smt. Nirmala Sitharaman presented the Economic Survey 2019-20 in the Parliament on January 31, 2020. Krishnamurthy V. Subramanian is the Chief Economic Adviser of Ministry of Finance, Government of India.
We will present Highlights of the Economic Survey in PART 1, 2 and 3:
Wealth Creation: The Invisible Hand Supported by the Hand of Trust
India’s dominance as global economic power for three-fourths of economic history manifests by design. Historically, Indian economy relied on the invisible hand of the market with the support of the hand of trust: o Invisible hand of the market reflected in openness in economic transactions. o Hand of trust appealed to ethical and philosophical dimensions.
Post-liberalisation, Indian economy supports both pillars of the economic model advocated in our traditional thinking.
Survey illustrates enormous benefits accruing from enabling the invisible hand of the market.
Exponential rise in India’s GDP and GDP per capita post-liberalisation coincides with wealth generation.
Survey shows that the liberalized sectors grew significantly faster than the closed ones.
Need for the hand of trust to complement the invisible hand, illustrated by financial sector performance during 2011-13.
Survey posits that India’s aspiration to become a $5 trillion economy depends critically on: o Strengthening the invisible hand of the market. o Supporting it with the hand of trust.
Strengthening the invisible hand by promoting pro-business policies to: Provide equal opportunities for new entrants, Enable fair competition and ease doing business, Eliminate policies unnecessarily undermining markets through government intervention, Enable trade for job creation, Efficiently scale up the banking sector.
Introducing the idea of trust as a public good, which gets enhanced with greater use.
Survey suggests that policies must empower transparency and effective enforcement using data and technology.
Entrepreneurship and Wealth Creation at the Grassroots
Entrepreneurship as a strategy to fuel productivity growth and wealth creation.
India ranks third in number of new firms created, as per the World Bank.
New firm creation in India increased dramatically since 2014: o 12.2 % cumulative annual growth rate of new firms in the formal sector during 2014-18, compared to 3.8 % during 2006-2014. o About 1.24 lakh new firms created in 2018, an increase of about 80 % from about 70,000 in 2014.
Survey examines the content and drivers of entrepreneurial activity at the bottom of the administrative pyramid – over 500 districts in India.
New firm creation in services is significantly higher than that in manufacturing, infrastructure or agriculture.
Survey notes that grassroots entrepreneurship is not just driven by necessity.
A 10 percent increase in registration of new firms in a district yields a 1.8 % increase in Gross Domestic District Product (GDDP).
Entrepreneurship at district level has a significant impact on wealth creation at the grassroots.
Birth of new firms in India is heterogeneous and dispersed across districts and sectors.
Literacy and education in a district foster local entrepreneurship significantly: o Impact is most pronounced when literacy is above 70 per cent. o New firm formation is the lowest in eastern India with lowest literacy rate (59.6 % as per 2011 Census).
Physical infrastructure quality in the district influences new firm creation significantly.
Ease of Doing Business and flexible labour regulation enable new firm creation, especially in the manufacturing sector.
Survey suggests enhancing ease of doing business and implementing flexible labour laws can create maximum jobs in districts and thereby in the states.
Pro-business versus Pro-markets
Survey says that India’s aspiration of becoming a $5 trillion economy depends critically on: o Promoting ‘pro-business’ policy that unleashes the power of competitive markets to generate wealth. o 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: o Before liberalisation, a Sensex firm expected to stay in it for 60 years, which decreased to only 12 years after liberalisation. o 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: o An equity index of connected firms significantly outperformed market by 7 % a year from 2007 to 2010, reflecting abnormal profits extracted at common citizens’ expense. o In contrast, the index underperforms 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 competitive allocation of the same post 2014 ended such rent extraction.
Similarly crony lending that led to wilful default, wherein promoters collectively siphoned off wealth from banks, led to losses that dwarf subsidies for rural development.
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.
Four examples of anachronistic government interventions: 1. Essential Commodities Act (ECA), 1955: o Frequent and unpredictable imposition of blanket stock limits on commodities under ECA distorts: • The incentives for the creation of storage infrastructure by the private sector. • Movement up the agricultural value chain. • Development of national market for agricultural commodities. o Imposition of stock limits on dal in 2006-Q3, sugar in 2009-Q1 and onions in September, 2019 spiked up the volatility of the retail and wholesale prices of onions. o The Ministry of Consumer Affairs must examine whether the ECA is relevant in today’s India. o With raids having abysmally low conviction rate and no impact on prices, the ECA only seems to enable rent-seeking and harassment. o Survey suggests there is clear evidence for jettisoning this anachronistic legislation. 2. Drug Price Control under ECA: o The regulation of prices of drugs, through the DPCO 2013, led to increase in the price of the regulated pharmaceutical drug vis-à-vis that of an unregulated but similar drug. o The increase in prices is greater for more expensive formulations than for cheaper ones and for those sold in hospitals rather than retail shops. o These findings reinforce that the outcome is opposite to what DPCO aims to do – making drugs affordable. o Government, being a huge buyer of drugs, can intervene more effectively to provide affordable drugs by combining all its purchases and exercising its bargaining power. o Ministry of Health and Family Welfare must evolve non-distortionary mechanisms that utilise Government’s bargaining power in a transparent manner. 3. Government intervention in Grain markets: o Policies in the food-grain markets led to: • Emergence of Government as the largest procurer and hoarder of rice and wheat. • Crowding out of private trade. • Burgeoning food subsidy burden • Inefficiencies in the markets, affecting the long run growth of agricultural sector. o The food-grains policy needs to be dynamic and allow switching from physical handling and distribution of food-grains to cash transfers/food coupons/smart cards. 4. Debt waivers: o Analysis of debt waivers given by States/Centre: • Full waiver beneficiaries consume less, save less, invest less and are less productive after the waiver, compared to the partial beneficiaries. • Debt waivers disrupt the credit culture. • They reduce formal credit flow to the very same farmers, thereby defeating the purpose. Survey suggests that: o Government must systematically examine areas of needless intervention and undermining of markets; but it does not argue that there should be no Government intervention. o Instead it suggests that the interventions that were apt in a different economic setting may have lost their relevance in a transformed economy. o Eliminating such instances will enable competitive markets spurring investments and economic growth.
Creating Jobs and Growth by Specializing in Network Products
Survey says India has unprecedented opportunity to chart a China-like, labour-intensive, export trajectory.
By integrating “Assemble in India for the world” into Make in India, India can: o Raise its export market share to about 3.5 % by 2025 and 6 % by 2030. o Create 4 crore well-paid jobs by 2025 and 8 crore by 2030.
Exports of network products can provide one-quarter of the increase in value added required for making India a $5 trillion economy by 2025.
Survey suggests a strategy similar to one used by China to grab this opportunity: o Specialization at large scale in labour-intensive sectors, especially network products. o Laser-like focus on enabling assembling operations at mammoth scale in network products. o Export primarily to markets in rich countries. o Trade policy must be an enabler.
Survey analyses the impact of India’s trade agreements on overall trade balance: o India’s exports increased by 13.4 % for manufactured products and 10.9 % for total merchandise o Imports increased by 12.7 % for manufactured products and 8.6 per cent for total merchandise. o India gained 0.7 % increase in trade surplus per year for manufactured products and 2.3 % per year for total merchandise.
Targeting Ease of Doing Business in India
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. Survey has numerous case studies: o For merchandise exports, the logistics process flow for imports is more efficient than that for exports. o Electronics exports and imports through Bengaluru airport illustrate how Indian logistical processes can be world class.
The turnaround time of ships in India has almost halved to 2.48 days in 2018-19 from 4.67 days in 2010-11.
Suggestions for further Ease of Doing Business: o Close coordination between the Logistics division of the Ministry of Commerce and Industry, the Central Board of Indirect Taxes and Customs, Ministry of Shipping and the different port authorities. o Individual sectors such as tourism or manufacturing require a more targeted approach that maps out the regulatory and process bottlenecks for each segment.
Golden jubilee of bank nationalisation: Taking stock
Survey observes 2019 as the golden jubilee year of bank nationalization
Accomplishments of lakhs of Public Sector Banks (PSBs) employees cherished and an objective assessment of PSBs suggested by the Survey.
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: Finland (about 1/11th), Denmark (1/8th), etc. A large economy needs an efficient banking sector to support its growth.
The onus of supporting the economy falls on the PSBs accounting for 70 % of the market share in Indian banking: o PSBs are inefficient compared to their peer groups on every performance parameter. o In 2019, investment for every rupee in PSBs, on average, led to the loss of 23 paise, while in NPBs it led to the gain of 9.6 paise. o Credit growth in PSBs has been much lower than NPBs for the last several years. ·Solutions to make PSBs more efficient: o Employee Stock Ownership Plan (ESOP) for PSBs’ employees o Representation on boards proportionate to the blocks held by employees to incentivize employees and align their interests with that of all shareholders of banks. o 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.
Financial Fragility in the NBFC Sector
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: o Asset Liability Management (ALM) Risk. o Interconnectedness Risk. o Financial and Operating Resilience of an NBFC. o 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 analysis of the Health Score has the following findings: o The HFC sector exhibited a declining trend post 2014 and overall health of the sector worsened considerably by the end of FY2019. o The Score of the Retail-NBFC sector was consistently below par for the period 2014 -19. o Larger Retail-NBFCs had higher Health Scores but among medium and small Retail- NBFCs, the medium size ones had a lower score for the entire period of 2014-19.
Survey suggests that the Health Score provides an early warning signal of impending liquidity problems.
Equity markets react favourably to increase in Health Score of individual HFCs and Retail-NBFCs.
The Survey prescribes this analysis to efficiently allocate liquidity enhancements across firms (with different Health Scores) in the NBFC sector, thereby arresting financial fragility in a capital-efficient manner.
Privatization and Wealth Creation
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 crore in national wealth.
Survey presents an analysis of the before-after performance of 11 CPSEs which underwent strategic disinvestment from 1999-2000 to 2003-04: o Financial indicators such as net worth, net profit, return on assets (ROA), return on equity (ROE) etc of the privatized CPSEs, on an average, have improved significantly. o Privatized CPSEs have been able to generate more wealth from the same resources. Survey suggests aggressive disinvestment of CPSEs to: o Bring in higher profitability. o Promote efficiency. o Increase competitiveness. o Promote professionalism.
Is India’s GDP Growth Overstated? No!
GDP growth is a critical variable for decision-making by investors and policymakers. Therefore, the recent debate about accuracy of India’s GDP estimation following the revised estimation methodology in 2011 is extremely significant.
As countries differ in several observed and unobserved ways, cross-country comparisons have to be undertaken by separating the effect of other confounding factors and isolating effect of methodology revision alone on GDP growth estimates.
Models that incorrectly over-estimate GDP growth by 2.7 % for India post-2011 also misestimate GDP growth over the same period for 51 out of 95 countries in the sample.
Several advanced economies such as UK, Germany and Singapore have their GDPs misestimated with incompletely specified econometric model.
Correctly specified models that account for all unobserved differences and differential trends in GDP growth across countries fail to find any misestimating of growth in India or other countries.
Concerns of a misestimated Indian GDP are unsubstantiated by the data and are thus unfounded.
Thalinomics: The Economics of a Plate of Food in India
An attempt to quantify what a common person pays for a Thali across India.
A shift in the dynamics of Thali prices since 2015-16.
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.
Post 2015-16: Average household gained close to Rs. 11, 000 on average per year from the moderation in prices in the case of vegetarian Thali. 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 %. Affordability of non-vegetarian Thalis improved by 18 %.
India’s Economic Performance in 2019-20
India’s GDP growth moderated to 4.8 % in H1 of 2019-20, amidst a weak environment for global manufacturing, trade and demand.
Real consumption growth has recovered in Q2 of 2019-20, cushioned by a significant growth in government final consumption.
Growth for ‘Agriculture and allied activities’ and ‘Public administration, defense, and other services’ in H1 of 2019-20 was higher than in H2 of 2018-19.
India’s external sector gained further stability in H1 of 2019-20:
Current Account Deficit (CAD) narrowed to 1.5 % of GDP in H1 of 2019-20 from 2.1 % in 2018-19.
Impressive Foreign Direct Investment (FDI).
Rebounding of portfolio flows.
Accretion of foreign exchange reserves.
Sharper contraction of imports as compared to that of exports in H1 of 2019-20, with easing of crude prices.
Headline inflation expected to decline by year end:
Increased from 3.3 % in H1 of 2019-20 to 7.35 % in December 2019-20 due to temporary increase in food inflation.
Rise in CPI-core and WPI in December 2019-20 suggests building of demand pressure.
Deceleration in GDP growth can be understood within the framework of a slowing cycle of growth:
Financial sector acted as a drag on the real sector (investment-growth-consumption).
Reforms undertaken during 2019-20 to boost investment, consumption and exports:
Speeding up the insolvency resolution process under Insolvency and Bankruptcy Code (IBC).
Easing of credit, particularly for the stressed real estate and NBFC sectors.
Announcing the National Infrastructure Pipeline 2019-2025.
Survey expects an uptick in the GDP growth in H2 of 2019-20:
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.
Fiscal Developments
Revenue Receipts registered a higher growth during the first eight months of 2019-20, compared to the same period last year, led by considerable growth in Non-Tax revenue.
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).
Structural reforms undertaken in taxation during the current financial year:
Change in corporate tax rate.
Measures to ease the implementation of GST.
Fiscal deficit of states within the targets set out by the FRBM Act.
Survey notes that the General Government (Centre plus States) has been on the path of fiscal consolidation.
External Sector
Balance of Payments (BoP):
India’s BoP 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 10th January, 2020.
Global trade:
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 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.
India’s top five trading partners continue to be USA, China, UAE, Saudi Arabia and Hong Kong.
Exports: Top export items:Petroleum products, precious stones, drug formulations & biologicals, gold and other precious metals.
Largest export destinations in 2019-20 (April-November): United States of America (USA), followed by United Arab Emirates (UAE), China and Hong Kong.
The merchandise exports to GDP ratio declined, entailing a negative impact on BoP position.
Slowdown of world output had an impact on reducing the export to GDP ratio, particularly from 2018-19 to H1 of 2019-20.
Growth in Non-POL exports dropped significantly from 2009-14 to 2014-19.
India’s imports continue to be largest from China, followed by USA, UAE and Saudi Arabia.
Merchandise imports to GDP ratio declined for India, entailing a net positive impact on BoP.
Large Crude oil imports in the import basket correlates India’s total imports with crude prices. As crude price raises so does the share of crude in total imports, increasing imports to GDP ratio.
Significant Gold imports also correlate India’s total imports with gold prices. However, share of gold imports in total imports remained the same during 2018-19 and the first half of 2019-20, despite an increase in prices, possibly due to increase in import duty that reduced the import of gold.
Non-POL-non-gold imports are positively correlated with GDP growth.
Non-POL-non-oil imports fell as a proportion to GDP from 2009-14 to 2014-19 when GDP growth accelerated.
This may be because of consumption driven growth while investment rate declined, lowering non-POL-non-gold imports.
Continuous decline in investment rate decelerated GDP growth, weakened consumption, dampened the investment outlook, which further reduced GDP growth and along with it non-POL-non-gold imports as a proportion of GDP from 2018-19 to H1 of 2019-20.
Under trade facilitation, India improved its ranking from 143 in 2016 to 68 in 2019 under the indicator, “Trading across Borders”, monitored by World Bank in its Ease of Doing Business Report.
Logistics industry of India:
Currently estimated to be around US$ 160 billion.
Expected to touch US$ 215 billion by 2020.
According to 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 at end September, 2019.
After significant decline since 2014-15, India’s external liabilities (debt and equity) to GDP increased at the end of June, 2019 primarily by increase in FDI, portfolio flows and external commercial borrowings (ECBs).
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.
However, it was kept unchanged in the fifth meeting held in December 2019.
In 2019-20, liquidity conditions were tight for initial two months; but subsequently it remained comfortable.
The Gross Non Performing Advances ratio:
Remained unchanged for Scheduled Commercial banks at 9.3% between March and September 2019
Increased slightly for the Non-Banking Financial Corporations (NBFCs) from 6.1% in March 2019 to 6.3% in September 2019.
Credit growth:
The financial flows to the economy remained constrained as credit growth declined for both banks and NBFCs.
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.
Prices and Inflation
Inflation Trends:
Inflation witnessing moderation since 2014
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).
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).
Drivers of CPI – Combined (C) inflation:
During 2018-19, the major driver was the miscellaneous group
During 2019-20 (April-December), food and beverages was the main contributor.
Among food and beverages, inflation in vegetables and pulses was particularly high due to low base effect and production side disruptions like untimely rain.
Cob-web Phenomenon for Pulses:
Farmers base their sowing decisions on prices witnessed in the previous marketing period.
Measures to safeguard farmers like procurement under Price Stabilisation Fund (PSF), Minimum Support Price (MSP) need to be made more effective.
Divergence Between Retail and Wholesale price:
Observed for essential agricultural commodities in four metropolitan cities of the country from 2014 to 2019.
Divergence particularly high for vegetables like onion and tomato. This may be due to the presence of intermediaries and high transaction costs.
Volatility of Prices: o 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. o Lower volatility might indicate the presence of better marketing channels, storage facilities and effective MSP system.
Regional variations: o CPI-C inflation has been highly variable across States ranging between (-)0.04 per cent to 8.1 per cent across States/UTs in financial year (FY) 2019-20 (April-December). o In most states, CPI-C inflation in rural areas is lower than the CPI-C inflation in urban areas o Rural inflation has been more variable across states than urban inflation.
Inflation dynamics: o Convergence of headline inflation towards core inflation as per the CPI-C data from 2012 onwards.
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. 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.
Chief Economic Adviser
The Chief Economic Adviser (CEA) is the economic advisor to the Government of India and the ex-officio cadre controlling authority of the Indian Economic Service. He/She is under the direct charge of the Minister of Finance.
J J Anjaria was the first CEA of India, from 1956-61.
Arvind Subramanian is the current CEA of India.
10 New Economic Facts on Indian Economy
Large increase in registered indirect and direct taxpayers – A 50 percent increase in unique indirect taxpayers under the GST compared with the pre-GST system. Increase in individual income tax filers as well and a large increase in voluntary registrations.
Formal non-agricultural payroll is much greater than believed – India’s formal sector, especially formal non-farm payroll, is substantially greater than believed. This has increased the formal sector payroll share to 53% from the earlier 31% of the non-agricultural work force.
States’ prosperity is correlated with their international and inter-state trade – States that export more internationally, and trade more with other states, tend to be richer. But the correlation is stronger between prosperity and international trade. States that export internationally and trade with other states were found to be richer.
5 States of Maharashtra, Gujarat, Karnataka, Tamil Nadu and Telangana account for 70% of India’s exports.
India’s internal trade is about 60% of the GDP.
India’s firm export structure is substantially more egalitarian than in other large countries Top 1 percent of Indian firms account for 38 percent of exports; in all other countries, they account for a substantially greater share (72, 68, 67, and 55 percent of exports in Brazil, Germany, Mexico, and USA respectively). And this is true for the top 5 percent, 10 percent, and so on. This is indicative of a better contribution from the smaller firms than in other countries.
The clothing incentive package boosted exports of readymade garments – The Rebate of State Levies (ROSL) was announced in 2016, under which, the Centre gives garment exporters refunds against all the levies they shell out at the state level.
The relief was offered under the duty drawback scheme as part of the package for the garments industry in the GST regime.
The incentive package boosted exports of ready-made garments by about 16%.
Indian society exhibits strong son “Meta” Preference – The survey highlighted that Indian society still exhibited a strong desire for a male child.
It pointed out that most parents continued to have children until they get number of sons.
This kind of fertility-stop-ping rule leads to skewed sex ratios but in different directions: skewed in favor of males if it is the last child, but in favor of females if it is not the last.
There is substantial avoidable litigation in the tax arena which government action could reduce – There is substantial avoidable litigation in the tax arena which government action could reduce.
The tax department’s petition rate is high, but its success rate in litigation is low and declining (well below 30%).
A smaller share of total pending cases accounted for a larger share of the money value at stake (due to the tax dispute). E.g. 2% of pending cases – 56% of the value at stake
66% of cases (each less than Rs 10 lakh) – 1.8% of the value at stake
To re-ignite growth, raising investment is more important than raising saving – It was highlighted that growth in savings did not bring economic growth.
But the growth in investment did bring a substantial growth to the economy.
The survey thus emphasizes that raising investment was more important than raising savings.
Own direct tax collections by Indian states and local governments are significantly lower than those of their counterparts in other federal countries
Indian states and other local governments empowered for tax collection realise lesser collection than their actual potential.
The footprint of climate change is evident and extreme weather adversely impacts agricultural yields
The impact of weather is felt only with extreme temperature increases and rainfall deficiencies
This impact is twice as large in unirrigated areas as in irrigated ones.
Economic Growth
Projections – The survey forecasts real GDP growth to reach 6.75% this fiscal. It is projected to rise to 7 – 7.5% in 2018-19. This could re-instate India as the world’s fastest growing major economy.
The Gross Value Added (GVA) at constant basic prices is expected to grow at 6.1 % in 2017-18, as against the 6.6% in 2016-17. Agriculture, industry and services sectors are expected to grow at 2.1, 4.4 and 8.3 percentages respectively in 2017-18.
Factors – The growth projections were based on the various reform measures undertaken in the recent years.
It includes GST, resolution of the Twin Balance Sheet (TBS) problem through IBC, recapitalization package for PSBs.
Also, with liberalization of FDI and export uplift from the global recovery, the economy began to accelerate in the second half.
Comparative performance – India’s average GDP growth during last 3 years is around 4 percentage points higher than the global growth. India’s growth averaged to 7.3% in 2014-15 to 2017-18 period. Lower inflation, improved current account balance and reduction in the fiscal deficit to GDP ratio are notable factors behind.
Way Ahead – The agenda for the next year to ensure a favourable growth trend
stabilizing the GST
completing the TBS actions
reducing unviable banks and allowing greater private sector participation
privatizing Air India
staving off threats to macro-economic stability
Areas of policy focus:
Employment – for the young and burgeoning workforce, especially women
Education – creating an educated and healthy labour force
Agriculture – raising farm productivity and strengthening agricultural resilience
Inflation
The Consumer Price Index (CPI) based headline inflation averaged to 3.3% during 2017-18. Many states have also witnessed a sharp fall in CPI inflation during 2017-18.
This is notably the lowest in the last six financial years. It has been below 4% for twelve straight months, from November, 2016 to October, 2017.
The CPI food inflation averaged around 1% during April-December in the current financial year. This has been possible due to Good agricultural production coupled with regular price monitoring by the Government. However, the recent rise in food inflation is mainly due to factors driving prices of vegetables and fruits.
Factors – The decline in inflation was broad-based across major commodity groups except Housing and Fuel & Light. In rural areas food was the main driver of CPI inflation and in urban areas, housing sector contributed the most.
Monetary Management
Monetary policy during 2017-18 was conducted under the revised statutory framework that provided for the MPC. The Monetary Policy Committee (MPC) decided to reduce the policy Repo Rate by 25 basis points to 6%, in August. Monetary policy has remained steady during 2017-18 with only one policy rate cut made in August.
Liquidity – Post the demonetisation in November 2016, the re-monetisation process began from November, 2017. This set in a favourable base effect. Resultantly, the Y-o-Y growth of both Currency in Circulation and M0 turned sharply positive.
Tax Collections
The growth in direct tax collections of the Centre was at 13.7% during April-November 2017. The indirect taxes growth rate was 18.3% during the same period. The States’ share in taxes grew by 25.2%. This is much higher than the growth in net tax revenue (to Centre) at 12.6% and of gross tax revenue at 16.5 %.
There was a slow pace in non-tax revenue but the robust progress in disinvestment compensated for this.
There is a 50% increase in the number of indirect tax payers.
Banking Sector
Banking sector performance, the PSBs in particular, continued to be subdued in the current financial year. The new Insolvency and Bankruptcy Code mechanism is being used actively to resolve the NPA problem of the banking sector.
Non Food Credit (NFC) grew at 8.85% in November 2017 as compared to 4.75% in November 2016.
Bank credit lending to Services and Personal Loans (PL) segments continues to be the major contributor to overall NFC growth.
The NBFC sector, as a whole, accounted for 17% of bank assets and 0.26% of bank deposits as on Sep 30, 2017.
External Sector
The global economy is expected to accelerate from 3.2% in 2016 to 3.6% in 2017 and 3.7% in 2018. It reflects an upward revision of the earlier projections by IMF.
India’s balance of payments situation continued to be favourable in the first half of 2017-18 as since 2013-14. This is despite some rise in the Current Account Deficit (CAD) in the first quarter (Q1). India’s CAD stood at US $7.2 billion in Q2 of 2017-18, i.e. 1.2% of the GDP.
India’s trade deficit (on custom basis) had widened. It stood at US$ 74.5 billion in the first half of 2017-18. This is against a declining trend in CAD observed since 2014-15.
Engineering goods, and petroleum crude and products registered a good export growth. Chemicals & related products and textiles & allied products witnessed a moderate growth. Negative growth was recorded by the gems and jewellery.
Future Prospects for India’s External Sector in coming year look bright. The world trade is projected to grow at 4.2 % and 4% in 2017 and 2018 respectively, as against 2.4% in2016. The trade of major partner countries is improving, and India’s export growth is also picking up.
However, rise in oil prices is emphasized as a huge challenge in the coming period, posing a downside risk to trade. This could also lead to higher inflow of remittances which have already started picking up.
Supportive policies like the GST, logistics and trade facilitation policies could help balance the risks.
Foreign Direct Investment
FDI equity inflows registered a 0.8% growth in total during 2017-18 (April-October) and FDI Equity Inflows to the Services sector grew by 15%, mainly due to higher FDI in two sectors i.e. Telecommunications and Computer Software and Hardware.
25 sectors also including services activities and covering 100 areas of FDI policy have undergone reforms recently. At present, more than 90% of FDI inflows are through automatic route.
Trade Policy
Two important developments on the trade policy front during the year relate to:
mid-term review of Foreign Trade Policy (FTP)
multilateral negotiations of WTO in December 2017
Foreign Exchange Reserves – India’s foreign exchange reserves crossed over US$ 409.4 billion on end-December 2017. India is 6th largest foreign exchange reserve holder among all countries of the world.
Industrial Sector
Index of Industrial Production (IIP) (base year 2011-12) indicates industrial output increase of 3.2 % (April-Nov 2017-18). This was a composite effect of robust growth in electricity generation and moderate growth in both mining and manufacturing sectors.
Core Industries – The 8 Core Infrastructure Supportive Industries had a cumulative growth of 3.9%(Apr-Nov 2017-18). They eight core industries are:
Coal
Crude Oil
Natural Gas
Petroleum Refinery Products
Fertilizers
Steel
Cement
Electricity
The production growth of Coal, Natural Gas, Refinery Products, Steel, Cement and Electricity was positive during this period. While the production of crude oil and fertilizers fell marginally.
Reforms – These include the GST, IBC, and announcement of bank recapitalization. Make in India programme, Start-up India and Intellectual Rights Policy to boost industrial growth are also the reasons. Notable sectoral initiatives include anti-dumping duty, Minimum Import Price (MIP) on a number of items for the steel sector and Pradhan Mantri Mudra Yojana for the MSMEs.
Performance indicators
India jumped 30 places to enter the top 100 for the first time in the World Bank’s Ease of Doing Business Report, 2018. It leaped 53 and 33 spots in the taxation and insolvency indices, respectively.
International ratings agency Moody’s upgraded India’s sovereign bond rating for first time in more than a decade.
Services Sector
The services sector continued to be the key driver of India’s economic growth. It has a share of nearly 55% in India’s Gross Value Added (GVA) and contributed almost 72.5 % of GVA growth in 2017-18.
Some of the notable areas include Tourism, Information Technology-Business Process Management, Real Estate, R&D, and Space.
India’s services sector registered an export growth of 5.7% in 2016-17. It remained the 8th largest exporter in commercial services in 2016 and has 3.4% of global share. This is double the share of India’s merchandise exports in the world which is 1.7%.
Enhanced global uncertainty, protectionism and stricter migration rules would be key challenges in shaping future services exports.
In the State-wise comparison of the performance of the Service sector in India. Out of the 32, in 15 states and UTs, the Services Sector is the dominant sector. It has contributed more than half of the Gross State Value Added (GSVA).
Services GSVA share ranges from over 80% in the case of Delhi and Chandigarh to around 31% in Sikkim. Services GSVA growth ranges from 14.5% as in Bihar to 7% in UP.
Infrastructure
The Global Infrastructure Outlook forecasts around US$ 4.5 trillion worth of investments for India till 2040 to develop infrastructure essential for both economic growth and community wellbeing.
India certainly lags behind many emerging economies in terms of providing qualitative transportation related infrastructure. Addressing this is essential to provide better access and thereby enhancing economic activities.
The umbrella programme ‘BharatmalaPariyojana’ aims to achieve optimal resource allocation for holistic highway development. Government has taken steps for streamlining of land acquisition and environment clearances to expedite delayed projects.
Railways showed an increase of over 5% in revenue- earning freight traffic carrying during 2017-18 (upto Sep 2017). The pace of commissioning Broad Gauge (BG) lines and completion of electrification have been accelerated.
Over 400 kms of metro rail systems are operational across the country. And another 680 kms (appx.) are under construction in various cities across India.
Ports – The port-led development along Indian coast line is undertaken under Sagarmala Programme. Almost 289 Projects worth over Rs. 2 Lakh Crore are under various stages of implementation and development. The cargo traffic handled at Major Ports has shown a marginal increase in the last year, valuing to around 500 million tonnes.
Telecommunication – Programmes like ‘Bharat Net’ and ‘Digital India’ could convert India into a digital economy.
Civil Aviation – Domestic airlines has showed a growth rate of 16% (in terms of increase in passenger carrying) in 2017-18 (April – Sep 2017) over the previous year period. Initiatives like liberalization of air services, airport development and regional connectivity through scheme like UDAN are being taken up.
Power – All-India installed power generation capacity has reached well over 3.3 lakh MW till Nov, 2017. The Ujjawal DISCOM Assurance Yojana (UDAY) has focused on enhancing the financial health of DIStribution COMpanies. It has reduced their interest burden, cost of power and aggregated technical and commercial losses. Electrification in 15,183 villages has been completed. Saubhagya (Pradhan Mantri Sahaj Bijli HarGhar Yojana), was launched in September 2017.
Logistics – The Indian logistics industry has grown at a compound annual growth rate (CAGR) of 7.8% during the last five years. The logistics sector provides employment to more than 22 million people.
World Bank’s 2016 Logistics Performance Index India improved to 35th rank in 2016 from 54th in 2014.
Housing – India’s housing policies have been mostly focused on building more homes and on home ownership.
Agriculture
Feminisation
The trend of ‘feminisation’ of agriculture sector i.e. increasing number of women in multiple roles as cultivators, entrepreneurs, and labourers. This is a consequence of growing rural to urban migration by men.
Women make presence at all levels of the agricultural value chain. Rural women are responsible for the integrated management and use of diverse natural resources to meet the daily household needs.
Importantly, the entitlements of women farmers will be the key to improve agriculture productivity.
Measures to ensure mainstreaming of women in agriculture sector:
earmarking at least 30% of the budget allocation for women beneficiaries in all ongoing schemes and initiatives
initiating women centric activities to ensure benefits of various beneficiary-oriented programs/schemes reach them
focusing on women self-help groups to connect them to micro-credit, ensuring representation in decision-making bodies
declaring 15th October of every year as Women Farmer’s Day, acknowledging the role of women in agriculture
Women farmers’ enhanced access to resources like land, seeds, water, credit, markets, technology and training is a necessity.
India needs an ‘inclusive transformative agricultural policy’ aimed at gender-specific intervention.
Mechanisation
Indian Farmers were adapting to farm mechanization at a faster rate in comparison to recent past. In 1960-61, about 93% farm power was coming from animate sources, which has reduced to about 10%in 2014-15.
Indian tractor industries have emerged as the largest in the world. They account for about 1/3rd of total global tractor production.
According to the World Bank estimates, half of the Indian population would be urban by the year 2050. It is estimated that the percentage of agricultural workers in total work force be around 25% by 2050.
Intensive involvement of labour in different farm operations makes the cost of production of many crops quite high.
All these call for a more enhanced level of farm mechanization in India. This also significantly reduce the cost of operation.
Land Holdings Consolidation
There is predominance of small operational holding in Indian Agriculture. The survey thus stresses the need for land holdings consolidation. This is especially essential for reaping the full benefits of agricultural mechanization.
Interest Subvention
A sum of around Rs.20,ooo crore has been approved in 2017-18 to meet various obligations arising from interest subvention.
This includes those provided to the farmers on short term crop loans and also loans on post-harvest storages.
The crop insurance under Pradhan Mantri Fasal Bima Yojana (PMFBY) is being linked to availing of crop loans.
Market Reforms
e-NAN – The electronic National Agriculture Market (e-NAM) was launched by Government on April, 2016. It aims at integrating the dispersed APMCs (Agricultural Produce Market Committee) through an electronic platform. It enables price discovery in a competitive manner to offer remunerative prices to farmers for their produce.
Farmers’ Income
Economic Survey emphasizes the Government’s goal to double farmers’ income by 2022, using programs like Soil Health Card, Input Management, Per Drop More Crop in Pradhan Mantri Krishi Sinchai Yojana (PMKSY), PMFBY, e-Nam, etc.
Innovation
Agricultural R&D is important for sustaining agricultural productivity growth in the long-term. The compound annual growth rate of expenditure has been 4.2% over the years. New Varieties/hybrids tolerant to biotic and abiotic stresses were released for cultivation in different agro-ecologies of the country. These have been developed for Cereals, Pulses, Oilseeds, commercial crops and Forage crops (for use as feed for animals).
Social Expenditure
The Expenditure on Social services by the Centre and States as a proportion of GDP stands at 6.6% in 2017-18 (BE). Components-based expenditure on social services in relation to GDP in 2017-18 (BE):
Education – 2.7%
Health – 1.4%
Others – 2.6%
Significance – Priority to social infrastructure are stated as essentials to inclusive and sustainable growth. Bridging the gender gaps in education, skill development, employment earnings, reducing social inequalities find mention in the survey.
Education
There is substantial improvement in the enrolment and completion rates of education in both primary and elementary school. There is also an increased percentage of schools which comply with Student Classroom Ratio (SCR) and Pupil Teacher Ratio (PTR) at the all India level. However, there are inter-state variations in adherence to SCR and PTR norms.
Gender Parity Index (GPI) at the primary and secondary levels of school has shown improvement.
RTE Act, 2009 is an initiative towards the goal of universalization of elementary education. Recent programmes like Beti Padhao, Beti Bachao are started to address gender bias in access to education.
Labour Reforms
The Survey mentions the technology enabled transformative initiatives such as:
Shram Suvidha Portal (facilitate reporting of Inspections, and submission of Returns)
Ease of Compliance (to maintain registers under various Labour Laws/Rules)
Universal Account Number
National Career Service portal (linking all employment exchanges)
These aim at reducing complexity in compliance and bringing transparency and accountability in labour laws enforcement.
Maternity Benefit (Amendment) Act, 2017, offers women entitlement to enhanced maternity leave for a period of 6 months.
India's gender gap in labour force
Mahila E-Haat is launched to provide e-marketing to products made/manufactured/sold by women entrepreneurs/SHGs/NGOs.
The legislative reforms in Labour sector include rationalizing 38 Central Labour Acts into 4 labour codes. They are the Codes on Wages, Safety and Working Conditions, Industrial Relations, Social Security and Welfare.
India’s gender gap in labour force participation rate is more than 50 percentage points, which is relatively high among many developing countries.
Women workers are the most disadvantaged in the labour market as they (a) constitute a very high proportion among the low skilled informal worker category, and (b) engaged in low-productivity and low paying work.
The lower participation of women in economic activities adversely affects the growth potential of the economy.
As per the ‘Women in Politics’ 2017 report:
Lok Sabha – 11.8% women MPs
Rajya Sabha – 11% women MPs
only 9% of MLAs across the country are women.
About 4.6 crore households were provided employment under the Mahatma Gandhi National Rural Employment Guarantee Act, out of this, 54% were generated by women.
Nai Roshni (leadership development programme for benefiting the women belonging to minority communities) is operational. Mahila Shakti Kendra scheme has been launched for leadership development and to address women’s issues at village levels.
Health
The National Health Policy 2017 recommends increasing State sector health spending to more than 8% of the States’ Government Budget by 2020. Strengthening health delivery systems and achieving universal health coverage are the objectives.
Government healthcare providers accounted for about 23% of the Current Health Expenditure (CHE). This reflects the prominence of private hospitals and clinics among health care providers.
Out of Pocket Expenditure (OoPE) is around 62% in total health expenditure. The higher levels of Out of Pocket Expenditure (OoPE) on health adversely impact the poorer sections and widen then inequalities. Lack of affordable diagnostic facilities consumes a significant part OoPE.
Average prices of diagnostic tests widely vary across cities, despite government’s efforts to regulate prices of Drugs and Diagnostics.
The concept of Disability Adjusted Life Years (DALYs) helps analyse the disease burden and associated risk factors. It is the sum of years of potential life lost due to premature mortality and the years of productive life lost due to disability.
There has been significant improvement in the health status of individuals in India. Evidently, life expectancy at birth has increased by 10 years during the period from 1990 to 2015. States with higher life expectancy are reflecting lower DALYs rates i.e. lower incidence of diseases and vice-versa.
Malnutrition still remains the most important risk factor, despite the drop in rate from 1990. Integrated Child Development Services, Pradhan Mantri Matru Vandana Yojana, National Nutrition Mission are efforts at addressing this.
The contribution of air pollution to disease burden is high in India with levels of exposure remaining among the highest in the world. Pradhan Mantri Ujjwala Yojana is a measure in this regard.
The other key risk factors include dietary risks, high blood pressure and diabetes etc. These is a shift in disease burden from Communicable Diseases to Non-Communicable Diseases over last two decades.
Sanitation
Sanitation coverage in rural India is stated to have increased from 39% in 2014 to 76% in January, 2018. It is mainly attributed to Swachh Bharat Mission (SBM) (Gramin) launched in 2014.
ODF – The number of persons defecating in open in rural areas has significantly declined, creating positive health and economic impact. So far, 296 districts and around 3 lakh villages all over India have been declared Open Defecation Free (ODF).
8 states (Sikkim, Himachal Pradesh, Kerala, Haryana, Uttarakhand, Chhattisgarh, Arunachal Pradesh, Gujarat) are declared ODF completely. 2 Union Territories (Daman & Diu and Chandigarh) also join this category.
The NSSO and Quality Council of India’s surveys reported more than 90% of individuals, who have access to toilets, using them.
UNICEF report, ‘The Financial and Economic Impact of SBM in India’, estimated that a household in an ODF village saves Rs 50,000/- a year.
Fiscal Federalism
Concerns
Difference in fiscal empowerment between urban and rural local government
The Survey highlights the low level of tax collections by the Rural Local Governments in India. RLGs received about 95% of their revenues from the devolved funds from the Centre/State. RLGs in India generate only about 6% of revenues from own resources compared to 40% in Brazil and Germany.
On the other hand, the urban local governments generate 44% of their total revenue from own sources. ULGs also collect 18% of total revenues from direct taxes, much closer to International norms.
Less Direct Taxes collection Direct Taxes account for only about 35% in India as against 70% in Europe. Indian States generate only about 6% of their revenue from direct taxes as against 19% and 44% in Brazil and Germany respectively. Moreover, unlike in other countries, reliance on direct taxes in India seems to be declining.
Causes
State Governments have not devolved enough taxation powers to the Panchayats. Even in cases where more powers are devolved, land revenue collection remained low. This is due to low base values applied to properties and also low rates of taxes levied.
Other reasons are (a) unwillingness to tax by the state, possibly due to close proximity between the state and the citizens, (b) unwillingness by abled citizens to pay because of dissatisfaction with the quality of services, and (c) Centre and States govt unwilling to their devolution powers to control lower levels of government.
Suggestions
The Survey emphasized the importance of fiscal decentralization. Fiscal decentralization is grounded on the idea that spending and tax decisions must reflect local preferences as far as possible. This is essential to address the issue of low tier governments remaining stuck in a ‘low equilibrium trap’depending largely on outside resources.
Financial Savings And Investment
India witnessed an unprecedented climb to historic high levels of investment and saving rates in the mid-2000s.
The ratio of domestic saving to GDP fell from the peak 38.3% in 2007 to about 29% in 2016.
The current slowdown where both investment and saving have slumped is the first in India’s history. India’s current investment/saving slowdown episode has been lengthy compared to other cases and it still continues. The cumulative fall over 2007 and 2016 has been milder for investment than saving. However, India’s investment slowdown is unusual.
There is a clear shift visible towards market instruments, largely driven by demonetization. Investment slowdowns are more detrimental to growth than savings slowdown. So, given the changing trend in savings side through recent measures, the need now is to focus more on investment revival.
The policy conclusion is urgent prioritization of investment revival to arrest the more lasting growth impacts.
Science & Technology
In 2013, India ranked 6th in the world in scientific publications and its ranking has been increasing as well. The growth of annual publications between 2009 and 2014 was almost 14%. This growth increased India’s share in global publications from 3.1 % in 2009 to 4.4 % in 2014. Broadly, the publication trends reveal that India is gradually improving its performance.
The Nature Index that assesses counts of high-quality research outputs ranked India at 13 in 2017.
According to the WIPO, India has the world’s 7th largest Patent Filing Office. However, India produces fewer patents per capita. One major challenge in India has been the domestic patent system. While India’s patent applications and grants have grown rapidly in foreign jurisdictions, the same is not true at home.
Sustainable Development
India’s urban population is projected to grow to about 600 million by 2031. The survey thus suggests Urban Local Bodies to generate resources through varied financial instruments like municipal bonds, PPPs and credit risk guarantees, to deliver on varied basic services.
Climate Change
India’s commitment to environment and response to the threat of climate change in accordance with the principles of equity and Common but Differentiated Responsibilities. Also, with the “Paris Pledge” to reduce the emission intensity of GDP by 33-35% over 2005 levels by the year 2030.
Renewable energy
Access to sustainable, modern and affordable energy is the basis of achieving Sustainable Development Goals. The increasing share of renewables has tripled in the last 10 years. As on 30th November 2017, the share of renewable energy sources was 18% in the total installed capacity of electricity in the country.
International Solar Alliance (ISA) entered into force in December, 2017.
