Economic Survey 2019-20: Key Highlights

The Union Minister for Finance & Corporate Affairs, Nirmala Sitharaman today presented the Economic Survey 2019-20 in the Parliament. The survey projected India's economic growth at 6per cent to 6.5 per cent in the next financial year (2020-21) that will start on April 1, 2020, saying growth has bottomed out.

The Survey this year has been printed in lavender colour - the same as the colour of the new 100 rupee currency note, the oldest currency note in circulation in the country. Importantly, The Economic Survey said that growth has bottomed out. The theme of the Economic Survey 2019-20 - Enable Markets, Promote 'Pro-Business' Policies and Strengthen 'Trust' in the Economy.

Economic Survey is an annual document that is presented by the government to review the state of the economy in the previous year while throwing light on its short-to-medium term prospects. It lays down the premise for key policy decisions that need to be taken to take the economy forward. It also assesses the impact of previous decisions through detailed statistical data.

Economic Survey 2020 Highlights:

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

1) Historically, Indian economy relied on the invisible hand of the market with the support of the hand of trust:

2) The invisible hand of the market reflected in openness in economic transactions.

3) Hand of trust appealed to ethical and philosophical dimensions.

4) Post-liberalisation, the Indian economy supports both pillars of the economic model advocated in our traditional thinking.

5) The survey illustrates enormous benefits accruing from enabling the invisible hand of the market.

6) An exponential rise in India's GDP and GDP per capita post-liberalisation coincides with wealth generation.

7) Survey shows that the liberalized sectors grew significantly faster than the closed ones.

8) Need for the hand of trust to complement the invisible hand, illustrated by financial sector performance during 2011-13.

9) It calls for providing equal opportunities for new entrants and enabling fair competition and eases doing business.

10) It asks for the elimination of unnecessary policies that undermine markets through government intervention.

11) It calls for enable trade for job creation and introduction of the idea of trust as a public good, which gets enhanced with greater use.

12) The survey suggests that policies must empower transparency and effective enforcement using data and technology.

$5 trillion economy

The survey put forward that India's aspiration to become a $5 trillion economy depends critically on:

1) Strengthening the invisible hand of the market.

2) Supporting it with the hand of trust.

Entrepreneurship and Wealth Creation at the Grassroots

New firm creation in India increased dramatically since 2014:

1) 12.2 % cumulative annual growth rate of new firms in the formal sector during 2014-18, compared to 3.8 % during 2006-2014.

2) About 1.24 lakh new firms created in 2018, an increase of about 80 % from about 70,000 in 2014.

Literacy and education in a district foster local entrepreneurship significantly:

1) The impact is most pronounced when literacy is above 70 per cent.

2) The new firm formation is the lowest in eastern India with the lowest literacy rate (59.6 % as per 2011 Census).

3) Physical infrastructure quality in the district influences new firm creation significantly.

4) Ease of Doing Business and flexible labour regulation enable new firm creation, especially in the manufacturing sector.

5) The survey suggests enhancing the ease of doing business and implementing flexible labour laws can create maximum jobs in districts and thereby in the states.

Creating Jobs and Growth by Specializing in Network Products

India has unprecedented opportunity to chart a China-like, labour-intensive, export trajectory.

1) By integrating "Assemble in India for the world" into Make in India. This will help India in raising its export market share to about 3.5 % by 2025 and 6 % by 2030. It will also help in creating 4 crore well-paid jobs by 2025 and 8 crores by 2030.

2) It suggests a strategy similar to the one used by China to grab this opportunity:

3) Specialization at large scale in labour-intensive sectors, especially network products.

4) A laser-like focus on enabling assembling operations at mammoth scale in network products.

5) Export primarily to markets in rich countries.

6) Trade policy must be an enabler.

Thalinomics: The Economics of a Plate of Food in India

It talks about the affordability of dynamic shift in Thali prices since 2015-16 and says 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:

1) Average household gained close to Rs. 11, 000 on average per year from the moderation in prices in the case of vegetarian Thali.

2) The 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:

1) Affordability of vegetarian Thalis improved 29 %.

2) Affordability of non-vegetarian Thalis improved by 18 %.

Ease of Doing Business in India

1) A jump of 79 positions to 63 in 2019 from 142 in 2014 in World Bank's Doing Business rankings.

2) India still trails in parameters such as Ease of Starting Business, Registering Property, Paying Taxes and Enforcing Contracts.

Public Sector Banks

1) Since 1969, India's banking sector has not developed proportionately to the growth in the size of the economy.

2) 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.

3) PSBs are inefficient compared to their peer groups on every performance parameter.

4) 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.

5) Credit growth in PSBs has been much lower than NPBs for the last several years.

Solutions to make PSBs more efficient:

1) Employee Stock Ownership Plan (ESOP) for PSBs' employees

2) Representation on boards proportionate to the blocks held by employees to incentivize employees and align their interests with that of all shareholders of banks.

3) 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.

NBFC Sector

It investigates the key drivers of Rollover Risk of the shadow banking system in India in light of the current liquidity crunch in the sector.

Key drivers of Rollover Risk:

1) Asset Liability Management (ALM) Risk.

2) Interconnectedness Risk.

3) Financial and Operating Resilience of an NBFC.

4) Over-dependence on short-term wholesale funding.

5) The analysis of the Health Score has the following findings:

6) The HFC sector exhibited a declining trend post-2014 and overall health of the sector worsened considerably by the end of FY2019.

7)The Score of the Retail-NBFC sector was consistently below par for the period 2014 -19.

8) 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.