Assam Finance Minister, Ms. Ajanta Neog presented the state’s ₹774.47 cr deficit annual Budget for the financial year 2024-25 on February 12, 2024. With no new taxes proposed, Neog mentioned that the total budget for the coming financial year will be ₹2.9 lakh crore.
Budget estimates for 2024-25 show receipt of ₹143,605.56 crore under consolidated fund of the state. With receipt of ₹144,550.08 crore under public account and ₹2,000 crore from contingency fund, the aggregate receipts amount to ₹290,155.65 crore. The minister mentioned that total expenditure from the consolidated fund in 2024-25 is estimated at ₹143,890.62 crore.
Important Policies/Yojana announced in Assam Budget 2024-25
Punya Tirtha Yojana: Among the budget’s key highlights was the announcement of Punya Tirtha Yojana scheme to send 25,000 pilgrims to visit the Ram Mandir at Ayodhya, with an earmarked budget of ₹25 crore.
Mukhya Mantri Nijut Moina: The government will support 10 lakh girls with financial grants as admission incentives for their higher education. Each girl student who joins class 11 will receive One-time incentives of ₹10,000 and those joining first year of graduation will be given ₹12,500. One-time incentives of Rs 15,000 will be paid to 10 lakh girl students for joining post-graduation (first year). This will be available for students taking admission in government colleges and institutions. A total outlay of ₹240 crore has been allocated for this in the budget. Aimed at eliminating child marriages, the incentive is only for unmarried girls who study in any government-run educational institution.
Mukhya Mantri Mahila Udyamita Abhiyaan: A minimum amount of Rs 47,500 will be provided to each woman member of self-help groups in rural and urban areas. This will be provided by a combination of grant, subsidy, and loan.
Mukhya Mantri Awaas Yojana (Gramin): 13,000 houses each will be allocated to eligible beneficiaries from tea garden communities and poorest of poor beneficiaries who were not included under the socio-economic caste census.
Rooftop solar: All new private and public buildings constructed in Assam will have to mandatorily install rooftop solar facility.
Farm mechanisation: The state government will distribute power tillers, tractors, threshers, and other farm equipment to support agricultural activities.
Social Equity in Government Recruitment: To bring social equity in Govt recruitment for all grade III and grade IV posts without compromising the quality of selection, from the 2024-25 fiscal, the government will provide 5% weightage in total marks to job applicants from families without any member in government service.
Safeguard for iconic sites: Budget proposals included bringing in legislation to ensure that the land surrounding “iconic and heritage locations” in Barpeta, Batadrava, Majuli, and Narayanpur is transferred only to indigenous persons or institutions. The move is to “safeguard the cultural significance” of these places.
Mukhya Mantri Sangrahalaya: The government has also decided to set up ‘Mukhya Mantri Sangrahalaya’ in Guwahati to document the legacies of all former Chief Ministers of the State.
ASHTADASH MUKUTOR UNNOYONEE MAALA:
Flagship Schemes 2024-25
Mukhya Mantri Nijut Moina (MMNM)
Mukhya Mantri Mahila Udyamita Abhiyaan
Orunodoi 2.0 – Expanding and More Inclusive
Assam Micro Finance Incentive and Relief Scheme – Category III
Chief Minister’s Atmanirbhar Assam Abhijan
One Lakh Plus Jobs
Projects for Amrit Kaal
Creating Growth Corridors
Mukhya Mantri Awaas Yojana (Gramin)
Innovative integration of wetlands with River Brahmaputra
Green Growth for Greener Assam
Welfare of Tea Tribe Community
Quest for Cultural Identity
Punya Tirth Yojana – Ayodhya Pilgrimage
Future for Children
Khel Maharan and Youth Clubs in 126 LACs
Global Investors’ Summit in November, 2024
Mukhya Mantri Sangrahalaya
Major Announcements for FY 2024-25
Reservation for Agniveers in Assam Police
Self-sufficiency in egg, milk and fish production
Promotion of small tea growers
Start-up Mission
Setting up of Training Centre at Padmashree Hemaprova Chutia’s residence
PM Vishwakarma Yojana
Farm Mechanization
Rooftop solarisation
Climate Action
Amrit-Guwahati Integrated Global City (Amrit-GiG City)
Ayushman Asom : A comprehensive healthcare initiative
Comprehensive School health Programme under Chief Minister’s Ayushman Asom
Village and Community Outreach Programme for MBBS Students in Assam under Chief Minister’s Ayushman Asom
Championing Digital Transformation & Artificial Intelligence
Gyan-Dhara – Integrating virtual reality technology with for experiential learning
Third Assam Bhawan in New Delhi
Standing with our employees – Apun Ghar, Apun Bahan
Supporting the Employees of Different Societies (Ex-Gratia)
Jeevika Sakhi Express
Monthly remuneration to honorary Gaon Pradhans in the Forest areas
Expenditures & Receipts of Govt of Assam
Expenditure (excluding debt repayment) in 2024-25 is estimated to be Rs 1,36,699 crore, a decrease of 9% from the revised estimates of 2023-24. In addition, debt of Rs 7,192 crore will be repaid by the state.
Receipts (excluding borrowings) for 2024-25 are estimated to be Rs 1,14,165 crore, a decrease of 5% as compared to the revised estimate of 2023-24.
Revenue surplus in 2024-25 is estimated to be 0.3% of GSDP (Rs 1,852 crore), as compared to a revenue deficit of 0.2% of GSDP (Rs 1,396 crore) at the revised estimate stage in 2023-24. Assam had budgeted a revenue surplus of 0.5% of GSDP in 2023-24.
Fiscal deficit for 2024-25 is targeted at 3.5% of GSDP (Rs 22,534 crore). In 2023-24, as per the revised estimates, fiscal deficit is expected to be 5.2% of GSDP.
Receipts in 2024-25
Total revenue receipts for 2024-25 are estimated to be Rs 1,11,944 crore. Of this, Rs 43,020 crore (38%) will be raised by the state through its own resources, and Rs 68,924 crore (62%) will come from the centre. Resources from the centre will be in the form of state’s share in central taxes (36% of revenue receipts) and grants (26% of revenue receipts).
Devolution: In 2024-25, state’s share in central taxes is estimated at Rs 40,000 crore.
Grants from the centre in 2024-25 are estimated at Rs 28,924 crore.
Assam’s own tax revenue
Assam’s total own tax revenue is estimated to be Rs 34,148 crore in 2024-25, an increase of 13% over the revised estimate of 2023-24. Own tax revenue as a percentage of GSDP is estimated at 5.3% in 2024-25, same as the revised estimates for 2023-24. As per the actual figures for 2022-23, own tax revenue as a percentage of GSDP was 5%.
In 2024-25, State GST is estimated to be the largest source of own tax revenue (50% share).
Assam’s expenditure on key sectors
Education: Assam has allocated 17% of its expenditure on education in 2024-25. This is higher than the average allocation for education by states in 2023-24 (14.7%).
Health: Assam has allocated 6.1% of its total expenditure towards health, which is broadly similar to the average allocation for health by states (6.2%).
Rural development: Assam has allocated 3.7% of its expenditure on rural development. This is lower than the average allocation for rural development by states (5%).
Roads and bridges: Assam has allocated 7% of its expenditure towards roads and bridges. This is higher than the average allocation towards roads and bridges by states (4.6%).
Agriculture: Assam has allocated 4.5% of its total expenditure towards agriculture. This is lower than the average expenditure on agriculture by states (5.9%).
Irrigation: Assam has allocated 2.8% of its total expenditure towards irrigation, which is lower than the average allocation by states (3.4%).
Deficits, Debt, and FRBM Targets for 2024-25
The Assam Fiscal Responsibility and Budget Management Act, 2005 provides annual targets to progressively reduce the outstanding debt, revenue deficit and fiscal deficit of the state government.
Revenue balance: It is the difference of revenue expenditure and revenue receipts. A revenue deficit implies that the government needs to borrow to finance those expenses which do not increase its assets or reduces its liabilities. The budget estimates a revenue surplus of Rs 1,852 crore (or 0.3% of the GSDP) in 2024-25.
Fiscal deficit: It is the excess of total expenditure over total receipts. This gap is filled by borrowings by the government and leads to an increase in total liabilities. In 2024-25, the fiscal deficit is estimated to be 3.5% of GSDP. For 2024-25, the central government has permitted fiscal deficit of up to 3.5% of GSDP to states, of which 0.5% of GSDP will be available upon carrying out certain power sector reforms. As per the revised estimates, in 2023-24, the fiscal deficit of the state is expected to be 5.2% of GSDP. This is higher than the budget estimate of 3.7% of GSDP. Fiscal deficit is projected to be lowered to 1.4% of GSDP by 2029-30.
Outstanding debt: Outstanding debt is the accumulation of total borrowings at the end of a financial year. At the end of 2024-25, the outstanding debt is estimated to be 25.2% of GSDP, higher than the budget estimate for 2023-24 (24.4% of GSDP).
Outstanding Government Guarantees: Outstanding debt of states do not include a few other liabilities that are contingent in nature, which states may have to honour in certain cases. State governments guarantee the borrowings of State Public Sector Enterprises (SPSEs) from financial institutions. As of March 31, 2023, the state’s outstanding guarantee is estimated to be Rs 1,167 crore, which is 0.2% of Assam’s GSDP in 2022-23.
GREEN BUDGETING
Green Budgeting is a Public Finance Management (PFM) tool to enable evidence and output based budgeting towards achieving climate and sustainability targets allowing for effi cient resource allocation towards Climate Change mitigation, adaptation, and environment sustainability.
A Green Budget contributes to achieving various Sustainable Development Goals (SDGs), such as SDG 13 (Climate Action), SDG 11 (Sustainable Cities and Communities), SDG 7 (Aff ordable and Clean Energy), and other SDGs, fostering a more sustainable and resilient future in line with the United Nations’ Sustainable Development Goals (SDGs) and India’s Nationally Determined Contributions (NDCs) under the Paris Agreement and other national and state commitments. Green Budget share is 10.02% of total budget of 18 key departments amounting to Rs. 4636 Crore in FY 2024-25.
Highlights of Assam Economy 2024
The Gross State Domestic Product (GSDP) of Assam for 2024-25 (at current prices) is projected to be Rs. 6,43,089 crore, amounting to growth of 13% over 2023-24.
In 2022-23, Assam’s GSDP (at constant prices) is estimated to grow by 10.2% over the previous year. In comparison, India’s GDP is estimated to grow by 7.2% in 2022-23.
Sectors contribution: In 2022-23, agriculture, manufacturing, and services sectors are estimated to contribute 35%, 19%, and 45% of Assam’s economy, respectively (at current prices).
Per capita GSDP: In 2022-23, Assam’s per capita GSDP (at current prices) is estimated to be Rs 1,36,819, an increase of 17% over 2021-22. In 2022-23, India’s per capita GDP is estimated to increase by 15% over 2021-22 to Rs 1,96,983.
On February 21, 2023, Union Finance Minister Nirmala Sitharaman presented the Union Budget 2023, which has provided much higher outlays for the Ministry of Development of North Eastern Region (MDoNER) during the Financial Year 2023-24.
With the objective of seeking a significant impact in the North Eastern Region (NER), emphasis has been laid on enhancing capital expenditure in the NE Region. By way of devolution Northeast India will get Rs 78,500 Crore. For flagship schemes the budget has allocated Rs 5000 Crore more this year.
Enhanced outlays are provided towards supporting the initiatives with special focus for the ST and SC communities; and the livelihoods of the women and the youth in NE Region.
There have been significant increases in the MDoNER Scheme-wise outlays also, that will increase the impact in infrastructure, social-development and livelihood sectors in the NER.
The quantum of funds to be earmarked by the various Central Ministries / Departments in the NER as per the 10% Gross Budgetary Support (GBS) stipulations have also been significantly enhanced.
Some of the major ongoing infrastructure projects in NER such as Capital Connectivity Roads and Rail-Lines, Air Connectivity, Power, Telecom, Petroleum & Natural Gas etc. are financed under 10% GBS.
Some of the announcements related to the Ministry of Development of North Eastern Region (DoNER) are:
There is a step-jump in the budget outlay for the MDoNER during the Financial Year 2023-24. The total B.E. 2023-2024 allocation is Rs. 5892.00 crore; well over twice (~114% higher than) the RE 2022-23 allocation of Rs. 2755.05 crore.
Out of this, Rs 4093.25 crore (~70%) is provided for Capital expenditure. In addition, Rs. 1,324.03 crore further from within the amount of Rs. 1,798.75 crore provided for Revenue Expenditure is as grants for creation of capital assets.
This is tantamount to provisioning of Rs. 5,417.28 crore (~92%) out of Rs. 5,892.00 crores as B.E. 2023-24 outlay for MDoNER towards expenditure of capital nature.
The total B.E. 2023-2024 allocation for the infrastructure targeted North East Special Infrastructure Development (NESID) Scheme is Rs. 2,491.00 crore; well over (~67% higher than) the RE 2022-23 allocation of Rs. 1,493.30 crore.
The total B.E. 2023-2024 allocation for the infrastructure, social development and livelihoods targeted Prime Ministers Development Initiative for North-East (PMDevINE) Scheme is Rs. 2,200.00 crore; four and a half times the RE 2022-23 allocation of Rs. 400.00 crore. PM-DevINE was announced in the union budget to address developmental gaps in the northeastern region.
The total B.E. 2023-2024 allocation for the overall wholistic development, social infrastructure and social development targeted Schemes of North Eastern Council (NEC) is Rs. 800.00 crore ; (~20% higher than) the RE 2022-23 allocation of Rs. 666.87 crore.
As per Expenditure Profile of Union Budget 2023-24 Statement-11, the 10% GBS share for the NER comes to Rs. 94,679.53 (~31% higher than) the RE 2022-23 allocation of Rs. 72.540.28 crore under 10% GBS share of the 55 non-exempt Ministries / Departments.
The allocation for Tribal Sub Plan (TSP) out of the B.E. outlay for 2023-24 has been enhanced to Rs. 1690.00 crore or over twice (~101% higher than) the RE 2022-23 allocation of Rs. 839.95 crore for TSP.
The allocation for Scheduled Caste Sub Plan (SCSP) out of the B.E. outlay for 2023-24 has been enhanced to Rs. 488.00 crore or nearly one and a half times (~48% higher than) the RE 2022-23 allocation of Rs. 330.54 crore for SCSP.
In comparison to the actual expenditure of Rs. 24,819.18 crore in 2014-15, the B.E. 2023-24 provision for 10% GBS shows an increase of Rs. 71,860.35 crore ; nearly thrice ( ~281% higher than) the actual expenditure in 2014-15.
In aggregate, a total of Rs. 3,37,000 crore was spent in the period from 2014-15 to 2021-22. Together with the anticipated expenditures of Rs. 72,540.28 crore in 2022-23 and Rs. 94,679.53 crore in 2023-24, the aggregate expenditure in NER under the 10% GBS stipulation is likely to reach Rs. 5,00,000 crore in the decade from 2014-15 to 2023-24.
For the first time an amount of Rs 1.20 lakh crore has been earmarked for connecting the hilly and border areas of the region.
Funds for Railway Development in Assam & North East States
Adequate fund has been allotted for the overall development of railway infrastructure in all Northeastern states. Union Budget 2023 has allocated 19 projects of Rs. 75,795 crore for the Railways in Assam and NorthEast. 19 projects covering 2,008 Km is are currently in process at Assam and other Northeastern regions.
Under Amrit Bharat Station Scheme, 59 stations in the North East will be developed with world-class amenities/facilities. The list of stations that will be benefited under the scheme are: Naharalagun (Itanagar), Amguri, Arunachal, Chaparmukh, DhemajiDhubriDibrugarh, Diphu, Duliajan, Fakiragram Jn., Gauripur, Gohpur, Golaghat, Gosaigaon hat. Haibargaon, Harmuti, HojaiJagiroad, Jorhat Town, Kamakhya. Kokrajhar, Lanka, Ledo, Lumding, Majbat, MakumJn, Margherita, Mariani, Murkongsolek, Naharkatia, Nalbari. Namrup, Narangi, New Bongaigaon, New Haflong, New Karimganj, New Tinsukia, North Lakhimpur, Pathshala, Rangapara North, RangiyaJn, SarupatharSilapathar, Silchar, Simalguri, Sivasagar Town, Tangla, Tinsukia, Udalguri, ViswanathChariali, Imphal, Sairang (Aizawl), Dimapur, Rangpo, Agartala, Dharmanagar, Kumarghat, Udaypur.
15 stations each in all divisions of NFR to be developed under Amrit Bharat Station Scheme.
The Union Budget 2023-24 has earmarked Rs 10,988.80 crore for the development of railways in the North East. It is 13.75 per cent more than the previous year’s allotment (Rs 9,660.14 crore).
Total railway infrastructure projects of Rs 75,795 crore are going on in the entire Northeastern region. An adequate allocation has been made for the early execution of all the ongoing works. Around Rs 1,100 crore has been allocated for Dimapur-Kohima new line projects while Rs 800 crore is earmarked for the execution of the Jiribam-Imphal new line projects.
Other capital connectivity projects in the Northeastern states such as Sivok – Rangpo new line projects in Sikkim gets Rs 2,350 crore while Rs 915 crore has been allocated for Bairabi-Sairang new line projects in Mizoram.
Among other new line projects, Rs 200 crore for Agartala-Akhaura international connectivity project between India and Bangladesh and around Rs 700 crore is allocated for Araria – Galgalia project.
Rs 600 crore for New Bongaigaon – Rangiya-Kamakhya and Rs 500 crore for New Bongaigaon-Goalpara-Kamakhya has been allocated for speedy execution of the ongoing track doubling works, he also said.
Moreover, Rs 115 crore has been allocated for the doubling works between Katihar-Kumedpur and Katihar-Mukuria sections to further improve train connectivity to and from Northeast.
Agthori station near Guwahati will be redeveloped with world-class facilities for Rs 517 crore.
Acknowledgment
Assam Chief Minister Himanta Biswa Sarma “Assam Govt will be richer by Rs 10,000 Crore following the Union budget 2023-24. CM Sarma said, “We have calculated and Assam will be richer by Rs 10,000 following the budget. This part only relates to untied fund. Once we calculate the money from the schemes it will be much more.”
While grant of Panchayats is increased by 15 percent grant of town committees is increased by 61 percent. “SDRF grant is increased by 5 percent and Central sector allocation is enhanced by 5 percent. The interest free loan amount of Assam is increased to Rs 6000 Crore.”
Assam will get an additional Rs 6400 crore of untied funds from the budget than the previous year. From some Rs 25,000 crore annually, this budget has allocated Rs 31, 950 Crore for Assam which is a hike of Rs 6,400 Crore. That means that now the state government will get around Rs 550 Crore more from the Centre monthly.”
Currently, the state government receives around Rs 18,000 Crore monthly from the Centre as untied funds which the state government can utilize at its own will.
Federation of Industry and Commerce of North Eastern Region (FINER) has hailed the Budget 2023, welcoming the budget, Bajrang Lohia said that the Finance Minister presented a citizen-centric, growth-oriented budget, which clearly sets the priorities going ahead, aiming at a stable tax regime. The budget focuses on the youth, women, and disadvantaged in general, and strives for enabling opportunities among the people.
The announcement of laying Rs.2491 crore for the North East Special Infrastructure Development Scheme is a huge relief to the industry fraternity of the region. Under the scheme, 100 percent centrally funding is provided to the State governments of North Eastern Region for the projects of physical infrastructure relating to water supply, power and connectivity enhancing tourism and social infrastructure relating to primary and secondary sectors of education and health.
Assam Finance Minister Himanta Biswa Sarma presented the state budget for the financial year 2020-21 on 6th March, 2020 at the state Legislative Assam assembly. The Finance Minister informed that despite sluggish growth across the globe and slowdown of the Indian Economy, the state of Assam achieved an impressive average annual growth rate in respect to GSDP at current prices during the period 2016-17 to 2019-20 (BE) at 12.38%. Even at constant prices, Assam has grown much faster than the national average which is a notable achievement.
Open up bank branches and ATMs in the unbanked areas.
An amount of Rs. 50 Crore is earmarked for Gap funding for banks to set up necessary infrastructure in the budget for the year 2020-21
Resolution of issues plaguing the Micro-Finance Institutions
Government proposes to frame detailed guidelines for the operations of the MFIs in the state, to safeguard the interest of people.
Government propose to constitute a Microenterpreneurs Support Fund with a corpus of Rs. 500 Crores.
Education
Educational Institutions Initiatives
Start five polytechnics at Morigaon, Udalguri, Tinsukia, Hailakandi and Chirang
Seven new Government Colleges, Borkhola in Cachar, Deaithor in Karbi Anglong, Kakopathar in Tinsukia, Katlicherra in Hailakandi, Lahorighat in Morigaon, Samaguri in Nagaon and Majer Alga in South Salmara.
New University Sati Sadhoni Rayjik Vishwavidyalaya in Golaghat District.
Two new Medical Colleges in Sonari and Biswanath Chariali
One new Ayurvedic College at Dudhnoi, Goalpara
One new Law College will be established in Kaliabor
To institute a Bani Kanta Kakoti Chair at Guwahati University.
Grants of Rs. 10 crore as corpus to Mahapurush Srimanta Shankardeva Viswabidyalaya.
Infrastructure
Chuburi Poka Rasta Asoni
Provide Rs. 20 Lakhs per Kilometer gap funding to P&RD department for construction of all-weather sustainable roads in hamlets.
Government propose to provide Rs. 20 lakhs per kilometre, as gap funding in Budget 2020-21
Construct 200 Km of roads on a pilot basis
40 Crore earmarked for year 2020-21.
City Infrastructure Development Fund
Schemes under CIDF to be continued.
Overall Commitment of Rs.2300 Crore for 18 Cities across the State.
Necessary Fund Provision for carrying out required activity
Uttoron
300 Crores earmarked for execution of Signature Projects of Infrastructure development.
Assam Adarsha Gram Yojan
Create ‘villages of excellence’ in each of the assembly constituencies.
Entry point activities to kickstart in right earnest
Announcement regarding making annual patta land transferable
Initiated steps to bring legal changes to make annual patta land transferable.
Indigenous Muslim Development Corporation
Create a Development Corporation for Indigenous Muslims of Assam.
Socio-economic census of these communities on a war footing.
Health & Welfare
PPP Partnership for Healthcare in Silchar
Engage quality private health institutions in Barak Valley with specialty branches like Cardiology, Neorology etc, under Public Private Partnership mode, to cater to the medical necessities of patients belonging to Cachar, Karimganj and Hailakandi districts.
An amount of Rs. 10 Crore is earmarked in the budget for the year 2020-21.
Partnerships with reputed private hospitals to provide NICU and PICU services
Empanel all Private Health Institutions who have the necessary quality standards for Paediatric and Newborn Intensive Care Unit setup,
To provide quality care to infants and Newborns of BPL as well as low income APL families.
Private partner to be reimbursed for expenditure made.
Sanitary Napkin Scheme
Free sanitary napkins to girls in Classes 6 to 12 in government and government-aided schools.
An amount of Rs. 25 crores is earmarked for this initiative.
Fighting Drug Menace
Establish of five de-addiction centres through partnerships with reputed NGOs.
Government to launch awareness drives in schools, colleges, Youth Clubs and amongst street children
Shram-Gaurav Asoni
Improve the health and quality of life of the construction workers with the following salient features:
IT enabled registration of workers and mass registration drives.
Waiver of registration fees for workers.
Insurance cover under Pradhan Mantri Jeevan Jyoti Bima Yojana and Pradhan Mantri Suraksha Bima Yojana.
Provide Rs. 3000 to each registered worker (<40 years) and Rs. 5000 to those who are above 40 years on DBT mode for annual medical check-up.
Provide one time grants of Rs. 5000 per registered workers on DBT mode for purchasing tools.
Mega Awareness Drive against Social Evils
Assam Science Technology and Environment Council (ASTEC) to launch a mega awareness drive against all social evils in line with progressive, scientific thinking
An amount of Rs. 10 crores is earmarked for this novel initiative.
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.
Note – This topic is little technical in nature, concepts more related to computer science. But everyone should have a fair idea of it, as it’s very important development and especially the ‘Blockchain technology’ bitcoin has popularized, is going to be used in many areas in near future.
Bitcoin is a cryptocurrency and worldwide payment system. It is the first decentralized digital currency, as the system works without a central bank or single administrator.
The network is peer-to-peer and transactions take place between users directly, without an intermediary. These transactions are verified by network nodes through the use of cryptography and recorded in a public distributed ledger called a blockchain.
Bitcoin was invented by an unknown person or group of people under the name Satoshi Nakamoto and released as open-source software in 2009. Bitcoins are created as a reward for a process known as mining. They can be exchanged for other currencies, products, and services.
The price of bitcoin skyrocketed into the thousands in 2017. Bitcoins can be used to buy merchandise anonymously. In addition, international payments are easy and cheap because bitcoins are not tied to any country or subject to regulation.
Small businesses may like them because there are no credit card fees. Some people just buy bitcoins as an investment, hoping that they’ll go up in value. Bitcoins are stored in a “digital wallet,” which exists either in the cloud or on a user’s computer. The wallet is a kind of virtual bank account that allows users to send or receive bitcoins, pay for goods or save their money.
What makes Bitcoins different is that a decentralized network of computers keeps track of them, instead of a single person, company, or government. They can be sent to someone via a computer or a mobile device, with each transaction being recorded in what is called a blockchain.
Bitcoin Mining – People compete to “mine” bitcoins using computers to solve complex math puzzles. This is how bitcoins are created. Currently, a winner is rewarded with 12.5 bitcoins roughly every 10 minutes.
Many marketplaces called “bitcoin exchanges” allow people to buy or sell bitcoins using different currencies. Coinbase is a leading exchange, along with Bitstamp and Bitfinex. People can send bitcoins to each other using mobile apps or their computers. It’s similar to sending cash digitally.
Pros and Cons of Bitcoins and other Crypto currencies
Low transfer fees – A big advantage to using Bitcoins is the low transfer fees. You can send as well as receive payments at a very low cost — often for free. In any case, the fees are lower than what you would have to pay when doing business through a bank. Additionally, Bitcoins can’t be counterfeited, making it safer than paper money in this regard.
Anonymity – Another advantage is that although all transactions are visible to everyone, they are anonymous, as you don’t have to disclose your personal info such as your name, address, and so on. This is also a disadvantage in a way, as it allows for some shady business. There’s no way to connect the money back to them. That’s why it has become the currency of choice for people online buying drugs or other illicit activities.
Security – A big problem with Bitcoins is security. As already mentioned, your Bitcoin wallet can be stored in the cloud or offline, on your computer. The offline method is more secure due to the reduced risk of getting hacked, but can also mean that you can lose all of your Bitcoins if whatever device that houses the wallet stops working. Bitcoins worth tens of millions of dollars were stolen from Bitfinex when it was hacked in 2016.
Irreversible Nature – Bitcoin transactions are also irreversible unlike those made with a credit card, so there’s a bigger chance of losing your money when dealing with sketchy sellers online.
Unstable – They aren’t as stable as most currencies, as their value fluctuate too much very frequently.
Uncertain Future – No one knows what will become of bitcoin. It is mostly unregulated, but recently some countries like Japan, China and Australia have begun weighing regulations. Governments are concerned about taxation and their lack of control over the currency.
Important Concepts
Blockchain
The blockchain is a public ledger that records bitcoin transactions. A novel solution accomplishes this without any trusted central authority: the maintenance of the blockchain is performed by a network of communicating nodes running bitcoin software.
Transactions of the form payer X sends Y bitcoins to payee Z are broadcast to this network using readily available software applications. Network nodes can validate transactions, add them to their copy of the ledger, and then broadcast these ledger additions to other nodes. The blockchain is a distributed database – to achieve independent verification of the chain of ownership of any and every bitcoin amount, each network node stores its own copy of the blockchain.
Approximately six times per hour, a new group of accepted transactions, a block, is created, added to the blockchain, and quickly published to all nodes. This allows bitcoin software to determine when a particular bitcoin amount has been spent, which is necessary in order to prevent double-spending in an environment without central oversight. Whereas a conventional ledger records the transfers of actual bills or promissory notes that exist apart from it, the blockchain is the only place that bitcoins can be said to exist in the form of unspent outputs of transactions.
Mining
Mining is a record-keeping service done through the use of computer processing power. Miners keep the blockchain consistent, complete, and unalterable by repeatedly grouping newly broadcast transactions into a block, which is then broadcast to the network and verified by recipient nodes.
Each block contains a SHA-256 cryptographic hash of the previous block, thus linking it to the previous block and giving the blockchain its name.
To be accepted by the rest of the network, a new block must contain a so-called proof-of-work. The system used is based on Adam Back’s 1997 anti-spam scheme, Hashcash. The PoW requires miners to find a number called a nonce, such that when the block content is hashed along with the nonce, the result is numerically smaller than the network’s difficulty target.[5]:ch. 8 This proof is easy for any node in the network to verify, but extremely time-consuming to generate, as for a secure cryptographic hash, miners must try many different nonce values (usually the sequence of tested values is the ascending natural numbers: 0, 1, 2, 3, …) before meeting the difficulty target.
Every 2,016 blocks (approximately 14 days at roughly 10 min per block), the difficulty target is adjusted based on the network’s recent performance, with the aim of keeping the average time between new blocks at ten minutes. In this way the system automatically adapts to the total amount of mining power on the network. Between 1 March 2014 and 1 March 2015, the average number of nonces miners had to try before creating a new block increased from 16.4 quintillion to 200.5 quintillion.
The proof-of-work system, alongside the chaining of blocks, makes modifications of the blockchain extremely hard, as an attacker must modify all subsequent blocks in order for the modifications of one block to be accepted. As new blocks are mined all the time, the difficulty of modifying a block increases as time passes and the number of subsequent blocks (also called confirmations of the given block) increases.
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.
Union Budget is the annual report of the Government’s finances in which revenues from all sources and outlays for all activities are consolidated. It also contains estimates of the Govt’s accounts for the next fiscal year.
On 1st February 2018, Union Finance Minister Arun Jaitley presented the Union Budget 2018, his 5th and the last full budget of this NDA government. This budget was also special because it is the first budget after big-ticket economic reforms like the Goods and Services Tax (GST), Demonetisation, Dynamic Fuel Pricing etc.
Major Highlights
Fiscal Situation
Fiscal deficit is 3.5% of GDP at Rs 5.95 lakh crore in 2017-18.
Excess revenue collected from personal income tax amounts to 90,000 cr.
Fiscal deficit target for next fiscal: 3.3%.
Rs 21.57 lakh crores transferred as net GST to states as against projection of Rs 21.47 lakh crores.
India’s growth story
Indian economy is on course to achieve high growth of 8%. Economy to grow at 7.2-7.5% in second half of 2018-19.
India grew at an average of 7.5% in the first three years since 2014. It is now a $2.5 trillion economy and the seventh largest in the world.
Government moves to remove stamp duty from financial transactions.
41% more returns were filed this year, which shows that more people have joined the tax net. Tax payer base has risen from 6.47 crore in 2014-15 to 8.27 crore in 2016-17.
Sector-wise Analysis
Personal Tax
Personal Income Tax: No change
Relief to salaried tax: Standard deduction increased for transport and medical reimbursement to Rs 40,000 from Rs 15,000. However conveyance expenses to get benefit of Rs 19,200 under transport allowance will stant discontinued.
Long term capital gains (LTCG) over Rs. 1 lakh to be taxed at the rate of 10%.
Health and education cess increased to 4% from current level of 3%.
For Senior citizens
Rs 50,000 additional benefit to senior citizens for investment in mediclaim.
For senior citizens, no TDS on FD, Post Office interest upto Rs. 50,000.
For senior citizen, limit for investment in LIC schemes doubled to Rs. 15 lakh.
Corporate Tax
100% tax exemption for the first five years to companies registered as farmer producer companies with a turnover of Rs. 100 crore and above.
Custom Duty/Cess
Proposal to increase the health and education cess to 4%.
Imported electronics, including phones and TVs, will now get more expensive as government proposes to increase custom duty on mobiles from 15% to 20% and on some other mobile parts to 15%, and some parts of TVs to 15%.
Customs duty on raw cashew cut form 5% to 2.5%.
Telecom
Government proposes to set up 5 lakh wifi-hotspots that will provide internet to five crore rural citizens in 2018-19.
Government provided Rs10,000 crore for creation and augmentation of telecom infrastructure in 2018-19.
Department of Telecom will support the setting up of indigenous 5G centre at IIT Madras.
Textile
Rs 7,148 crore allocated for textile sector
MSME Sector
Target of Rs. 3 lakh crore for lending under PM MUDRA Yojana.
Reduced corporate rate of 25% to firms with 250 cr turnover.
Banking
Recapitalisation will pave the way for public banks to lend an additional Rs 5 lakh crore.
Startups
VCFs, angel investors to get new measures for growth and new tax rules to increase funding of startups.
Railways
Rs 1,48,528 crore is the capital expenditure for the Indian Railways for 2018-19… All trains to be progressively provided with WiFi, CCTV and other state-of-the-art amenities.
All railways stations with more than 25,000 footfalls to have escalators.
12,000 wagons, 5160 coaches and 700 locomotives being procured. This is significant achievement of physical targets by Railways.
Focus will be on safety, maintenance of railway tracks, increase in use of technology and fog safety devices.
Redevelopment of 600 major railway stations has been taken up; Mumbai transport system is being expanded; suburban network of 160 km planned for Bengaluru.
Foundation stone of the bullet train was laid in September 2017. An institute is coming up in Vadodara to train the manpower required for the high speed railway projects.
3600-km of rail track renewal targeted in coming year.
All trains to increasingly have WiFi & CCTVs.
600 railway stations to be redeveloped.
150 km additional suburban railway network at the cost of Rs. 40,000 cr.
Agriculture
Credit for agriculture sector to increase from 10 lakh crore to 11 lakh crore
Agri-Market Development Fund with a corpus of Rs 2000 crore to be set up for developing agricultural markets.
1290 crore allocation for bamboo sector.
Operation Green allocation Rs. 500 crore for promoting farmer produce organisations.
Grameen Agricultural Market (GRAM) will provide farmers a means to sell directly to buyers.
The focus is on low-cost farming, higher MSP. Emphasis is on generating farm and non-farm employment for farmers.
The Minimum Support Price (MSP) of all crops shall be increased to at least 1.5 times that of the production cost.
The government will ensure payment of full MSP even if farmers sell below MSP.
10,000 cr for fishery development fund and animal husbandry fund.
Kisan credit card to be extended to fisheries, animal husbandry farmers.
100% tax deduction for farmer production firms with 100 crore turnover.
APMCs will be linked with ENAM. 22,000 Gramin agricultural markets will be developed.
Health
Ayushman Bharat program – About 10 crore poor and vulnerable families will be targeted under healthcare protection scheme, which will offer up to Rs 5 lakh per family. This will be the world largest government-aided programme.
As per the national health policy 2017, health and wellness centres will be launched. Around 1.5 lakh centres will provide free essential drugs, maternal and child services. The finance ministry allocated Rs1200 crore for this flagship programme.
Rs 1,200 crore for the flagship programme in health wellness centres.
TB patients will get Rs 500 per month for nutritional support.
600 crore for nutritional support to all TB patients.
Infrastructure
To spend 14.34 trillion Indian rupees ($225.50 billion) on rural infrastructure.
NHAI would transfer the road projects into special purpose vehicles to use innovative structures such as infrastructure trusts for fund mobilisation.
Government to use select InvITs for infrastructure funding.
System of toll payment by cash being replaced by electronic payments.
Smart City mission: 99 cities selected with outlay of Rs. 2.04 lakh crore.
5 lakh WiFi spots for benefit of 5 crore rural citizens.
10 tourist cities to be developed into iconic tourist destinations.
Connecting India– Road/Air
Bharatmala project approved for better road connectivity at Rs 5.35 lakh crore.
UDAN will connect 56 unserved airports in India.
Airports Authority of India now has 124 airports; this will be expanded by 5 times. Aim of 1 billion trips a year.
Airport capacity to be hiked to handle 1 billion trips per year.
Education
1 lakh crore over 4 years for initiative for infra in education.
At least 24 new government medical colleges and hospitals will be set up by upgrading existing district hospitals.
Goal of one medical college per every three Parliamentary constituencies.
1,000 best B.Tech students to be made PM research fellows — to do PhDs in IITs and IISc. They will spend few hours every week teaching in technical institutions.
Eighteen new schools of planning and architecure will be set up.
Proposal of Railway University in Vodadara.
Eklavya schools for tribal children.
Government to launch ‘Revitalising Infrastructure and Systems in Education by 2022.
Integrated B.Ed programme to be initiated for teachers, to improve quality of teachers.
Technology will be the biggest driver in improving education. To work with states to provide more resources to improve quality of education.
Moving from blackboard to digital board.
Skill Development & Training
Training for 50 lakh youth by 2020.
Science & Tech
National program to direct efforts in Artificial Intelligence.
Women
76% of MUDRA loans for women.
Contribution of 8.33% to EPF for new women employees by the govt for three years while the employer’s contribution will continue to be at 12%.
Government proposes to increase the target of providing free LPG connections to 8 crore to poor women.
8 crore rural women to get free gas connection through Ujjwala yojana.
Poor, backward and vulnerable section
By 2022, every block with more than 50% ST population and at least 20,000 tribal people will have ‘Ekalavya’ school at par with Navodaya Vidayalas.
Allocation of Rs. 56,619 crore for SC welfare and Rs. 39,135 crore for ST welfare.
Allocation for national livelihood mission: Rs. 5750 crore.
Other Important proposals
Government doesn’t consider cryptocurrencies as legal tender or coins.
The govt aim that by 2022, all poor people have a house to live in.
Government plans to construct 2 crore more toilets under Swachh Bharat Mission.
Total 187 projects sanctioned under the Namami Gange programme.
Air Pollution in Delhi-NCR is a cause for concern, special scheme will be implemented to support governments of Haryana, Punjab, Uttar Pradesh and Delhi-NCT to address it and subsidise machinery for management of crop residue.
Proposal to develop 10 prominent tourist destinations as Iconic tourism destinations.
AMRUT programme will focus on water supply to all households in 500 cities. Water supply contracts for 494 projects worth 19,428 core awarded.
Emoluments of the President to be revised to Rs 5 lakh per month & emoluments of the Vice-president to be revised to Rs 4 lakh per month.
Cash payments of over Rs. 10,000 by trusts, institutions to be disallowed.
Disinvestment target of Rs. 80,000 crore for 2018-19. 24 Public Sector Units to be divested.
United India Insurance, Oriental Insurance and National Insurance will be merged and then listed.
Gold monetisation scheme will be revamped to allow people to open hassle-free gold deposit accounts.
Outward Direct Investment (ODI) from India has grown to US$15 billion per annum.
Loans to self-help groups will increase to ₹75,000 crore
Key Focus Areas Agriculture,Health,Education and Employment are the main focussed areas of the Union budget 2018-19.
Important Glossary
Fiscal Deficit -When the government’s non-borrowed receipts fall short of its entire expenditure, it has to borrow money form the public to meet the shortfall. The excess of total expenditure over total non-borrowed receipts is called the scal decit.
Revenue Deficit -The difference between revenue expenditure and revenue receipt is known as revenue deficit. It shows the shortfall of government’s current receipts over current expenditure.
Primary Deficit -The primary deficit is the fiscal decit minus interest payments. It tells how much of the Government’s borrowings are going towards meeting expenses other than interest payments.
Capital Budget – The Capital Budget consists of capital receipts and payments. It includes investments in shares, loans and advances granted by the central Government to State Governments, Government companies, corporations and other parties
Revenue Budget – The revenue budget consists of revenue receipts of the Government and it expenditure. Revenue receipts are divided into tax and non-tax revenue.
Tax revenues constitute taxes like income tax, corporate tax, excise, customs, service and other duties that the Government levies.
Non-tax revenue sources include interest on loans, dividend on investments.
Budget Estimates – Amount of money allocated in the Budget to any ministry or scheme for the coming financial year.
Guillotine – Parliament, unfortunately, has very limited time for scrutinising the expenditure demands of all the Ministries. So, once the prescribed period for the discussion on Demands for Grants is over, the Speaker of Lok Sabha puts all the outstanding Demands for Grants, Whether discussed or not, to the vote of the House.
