Economic Survey 2020 projects economic growth at 6-6.5 percent in the fiscal year starting April 1. FY20 GDP seen at 5 percent. Copies of the document have been distributed to MPs in Parliament on January 31. Parliament is adjourned till 11 am tomorrow.
A full copy of the document can be found here.
Budget session of Parliament began with President Ram Nath Kovind's address to the joint sitting of Lok Sabha and Rajya Sabha at 11 am. Finance Minister Nirmala Sitharaman later tabled the Economic Survey for 2019-2020 at the session.
This blog will also bring you LIVE updates on the Economic Survey to be presented at 1.45 pm on January 31 by the Chief Economic Advisor (CEA) Krishnamurthy V Subramanian.
The annual Economic Survey is usually presented a day before the finance minister tables the Union Budget in the Parliament. Prepared by the economic division of the Department of Economic Affairs, it serves as the official report of the economy.
The Economic Survey document comprises of Volume I, Volume II and the statistical appendix. Tabled in both Houses of the Parliament, it reviews the developments that took place in the Indian economy over the past financial year.
It gives a detailed account of the state of the economy, prospects and the policy challenges. It carries sectoral overviews and comments on reform measures that are required. The survey’s outlook serves as a marker about future policy moves.
The survey puts out economic growth forecasts, giving out detailed reasons why it believes the economy will expand faster or decelerate. Commentary on topics such as GDP growth, job growth and GST collection is expected in this year's Economic Survey.
Authored by Chief Economic Adviser Krishnamurthy Subramanian and his team, the Survey serves as the official report of the economy and as a policy guide. The government is not bound to follow these recommendations.
The Survey, in the past, has favoured policy moves that come into conflict with the official line of thinking of the government in power. These do not necessarily serve as pointers to what to expect in the Budget. On many occasions, policy changes recommended in the document have not found a place in Budget proposals.
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As of September last year, road construction slowed down to 12.7 km a day, the Economic Survey 2019-20 noted. This decline in pace has largely been attributed to subdued private sector interest in existing models and issues in land acquisition for highways. Private sector investment in roads sector stands at Rs 12,000 crore until September 2019.
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Healthcare spending, as percentage of total expenditure, has remained flat at 5.3 percent in last two consecutive financial years, according to Economic Survey 2020.In terms of Gross Domestic Product (GDP) the government spending on healthcare is 1.6 percent in the FY20 budget estimate, a small rise from 1.5 percent in FY19
CII President to CNBC-TV18:
Some divestments, like that of Air India, need to be done as fast as possible. Need mutual trust between industry and government and between industry and society. Government has been listening to industry to try and build trust. Industry has to stop working on a “jugaad” basis and work on a global governance. Industry has to gain more maturity in both running business and its interactions with government.
CII President to CNBC-TV18:
China, Vietnam were assembling before they became manufacturing hubs. Coastal economic zones have worked in other countries, can work in India as well. Coastal economic zones will work only if bureaucracy is removed. Cost of doing business is as important a parameter as ease of doing business. Monetisation of government assets via a Temasek-like model is a long-term plan.
Confederation of Indian Industry President to CNBC-TV18:
Economic Survey talks about free markets, that is the way to go. Industry should be 'left alone' as much as possible.
Rajani Sinha, Chief Economist and National Director – Research, Knight Frank India:
The Economic Survey has projected GDP growth of 6-6.5 percentin FY21. This will require strong boost to consumption for the growth to pick up to these levels. Sharp pick up in investment growth looks difficult given the excess capacity in the manufacturing sector, poor health of NBFC sector and high NPAs plaguing the banking sector. The Survey has correctly identified the weakening health of the NBFC sector and suggested a framework for policy makers to efficiently allocate liquidity enhancements in the sector. The detailed discussion on infrastructure shows the Government’s strong intent to push up infrastructure investment as long-term growth propeller for the economy. The more critical aspect would be increased budgetary allocation for infrastructure investment in the Union Budget for FY21.
Elias George, Partner and National Head – Infrastructure, Government and Healthcare (IGH), KPMG India:
The government has rightly emphasised the need to ramp up and modernise India’s infrastructure stock for improving everyone’s ease of living, for enabling and enhancing livelihoods, and for reviving economic growth. The survey underlines the need to spend $1.4 trillion to attain our national aspirations of becoming a $5 trillion dollar economy by 2025, and also highlights the need for building next generation infrastructure, as well as for measures to create an appropriate enabling environment to meet the requirements of industry 4.0.
The focus of the survey on further simplifying processes involved in setting up new businesses, as well as on facilitating business aspirations at a district level are in accordance with its overarching goal of equitable and universal wealth creation.
Realising economic growth targets and attaining national aspirations call for not just renewed focus and investment in key sectors like infrastructure and rural empowerment, but also on establishing and enabling a climate of trust. Consequently, the survey’s emphasis on strengthening India’s trust economy and on the creation of simpler and speedier contractual enforcement regimes are indeed most welcome.
CEA Subramanian to CNBC-TV18:
Government intervention makes sense when there is a market failure. The market failure that exists today in some areas in the economy is not as bad.
CEA Subramanian to CNBC-TV18:
Should wait for impact of measures taken with respect to NBFCs and Realty. Steps that have been taken manifest on NBFCs, realty sector to manifest with lags.
CEA Subramanian to CNBC-TV18:
There is typically the stance that I advocate, policy making should be based on careful evidence. Really important to get the balance right, and avoid too much intervention as well.
CEA Subramanian to CNBC-TV18:
GDP estimates always have risks, we are confident of 6-6.5 percent growth. It is better to lean on growth in times like these. The Economic Survey is also clear that there is some possibility of fiscal slippage.A lot of fiscal measures have been taken,we must stay the course.
According to a CNBC-TV18 report, the government has revised the FY19 GDP growth to 6.1% from 6.8% earlier.
FY18 GDP growth has been revised to 7.0% from 7.2% earlier
FY19 Gross Value Added (GVA) growth has been revised to 6.0% from 6.6% earlier
There have been revisions in the FY19 nominal GDP growth which is now down to 11.0% from 11.2% earlier and theFY17 GDP growth to8.3% from 8.2% earlier
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More than 5,000 projects worth over Rs 2 lakh crore are being implemented in 100 cities under the government's smart city mission, the Economic Survey noted.Under the Smart Cities Mission, the Centre allocates Rs 500 crore to each of the cities for implementing projects proposed by it. This amount is matched with a grant of the same amount by the respective state.
Principal Economic Adviser Sanjeev Sanyal to CNBC-TV18 :
India’s credit culture has dramatically improved from 5 years ago.Time has come to seriously think about expansion of the credit and banking system. India has to seriously look at adopting bilateral netting laws. Large capital is locked up in banking system that can be used elsewhere. Bilateral netting laws will open up locked cap, boost derivatives markets.Can’t have a corporate bond market without a strong, well-regulated cds market. Inflation not a major concern, food prices go through occasional season spikes.Oil prices have come off, will be beneficial to India. Not seeing any sustained spike in food prices. Forex reserves at all-time highs. MPC framework has worked reasonably well in anchoring inflation. Don’t think MPC framework a major concern right now.
Principal Economic Adviser Sanjeev Sanyal to CNBC-TV18:
Made a case that for a $5 trillion economy, we will need high growth, high private sector investment. High private sector investment has to be driven by private capital.Indian banking system is too small to enable the kind of private investment needed. Have spent 5 years cleaning up the banking system, was necessary.
Principal Economic Adviser Sanjeev Sanyal to CNBC-TV18 :
We have been very apologetic about wealth creation for way too long. In the economic survey we have tried to make a case for markets, privatisation. Have advocated wealth creation based on markets, but in the context of systemic trust. If there is no trust in the systems, we’ll end up with crony capitalism.
No, India’s GDP growth is not overstated - says EconomicSurvey 2019-20
Here is an infographic by the PIB detailing the reasons as:
- Concerns unsubstantiated by data
- Models incorrectly over-estimating India's growth also misestimated the growth of 51 other countries
- Data of new firms creation find synergy with India's growth numbers
- Standing committee on economic statistics will give suggestions for improvement
The slowdown in demand for new vehicles can be attributed to external factors, as per the Economic Survey."It was felt that temporary auto slowdown may be attributable to certain other reasons such as lack of credit, base effect (as in last few years the auto sector has grown rapidly) and structural changes like the adoption of newer fuel standards from BS-IV to BS-VI from April 20 etc," it said.
Economic Survey 2020 has made a case for performance-linked employee stock options for public sector bank staff. It suggested that ownership would encourage innovation and risk-taking as against conservatism which is the typical mindset of employees in PSBs.
These suggestions come at a time when PSB employees have declared a two-day nation-wide strike on January 31 and February 1, demanding higher pay hikes and five-day workweek among other conditions.
There have been several failed attempts by PSBs to popularise the scheme among its employees in the past. Read more here.
Use health score method to detect early warning signals in NBFCs: Economic Survey
According to the Survey, Health Score can serve as an important monitoring mechanism to prevent liquidity crisis in the NBFC space in the future. The 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. Read more here.
Pointing the government to the experience of Singapore's Temasek Holdings Company, the Economic Survey 2020 said it was a good example for PSU divestment process.
“The government can transfer its stake in the listed CPSEs to a separate corporate entity. This entity would be managed by an independent board and would be mandated to divest the government stake in these CPSEs over a period of time. This will lend professionalism and autonomy to the disinvestment programme, which, in turn, would improve the economic performance of the CPSEs,” the Survey said.Read more here.
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Public sector banks (PSBs) can use a GTSN (goods and services tax network) type of network using big data and artificial intelligence for loan disbursements.This has been advised to prevent defaults by large borrowers, seeing how non-performing assets have been a cause of concern in the banking sector.
Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities:
The Economic Survey 2019-20 focused on the importance of market forces in economic growth and development. Importantly, with wealth creation as an overarching theme of the survey, continues to push forward with the vision of the $5 trillion economy over next few years. The details of the survey are also encouraging with focus on exports, lower government interventions, establishing trust as a public good, targeting ease of doing business, privatisation, etc. clearly outlines the government’s approach to boosting potential growth of the economy. From a more short term perspective, the survey pegs the FY2021 growth at 6-6.5 percent which seems slightly on the higher side even though it clearly outlines the need for counter-cyclical fiscal policy in order to create additional fiscal headroom. This possibly sets the base for higher-than-budgeted FY2020 GFD/GDP as well as deviation from the fiscal glide path in FY2021 too. We expect GFD/GDP at 3.8 percent in FY2020 and 3.7 percent in FY2021.
Dr Niranjan Hiranandani, President, ASSOCHAM and NAREDCO:
As India Inc well appreciates the significant progress of Nation’s global rankings across various parameters, there is a lot more bridges to build for nullifying the economic gaps. Proactive measures should be undertaken to push India amongst top 50 nations in global pecking order of Ease of doing business mechanism and make it globally competitive market. We strongly recommend bold fiscal stimulus in the labour intensive sectors which shall have domino effect to enhance employment generation and GDP ratio.
Dr Niranjan Hiranandani, President, ASSOCHAM and NAREDCO:
Assochamwelcomes the positive outlook of Economic Survey report presented today where in India’s economic growth is projected at 6 percent to 6.5 percent in the next financial year starting April 1, 2020. However, we strongly advocate that the central government needs to announce bolder policy and fiscal measures to recover from sharp economic downturn and somnolent market scenario. The success of economic green shoots lies in connecting the right dots for economic prosperity in an immediate time frame.
Theprojected much tepid growth on the expected lines for the year 2019-20 at 5 percent reveals that growth has bottomed out.The Economic Survey highlighted the need to relax fiscal slippage in terms of prudent spending with a primary objective to bounce back from economic doldrums.
CEA Subramanian:
Government intervention is required when there is market failure, the market failures today are much less than they were in the 1950s or the 1980s; this should be considered while reviewing our laws.
CEA Subramanian:
Peaks and troughs in business cycle phenomena show that we have hit a trough as regards economic growth, hopeful of achieving 6.0-6.5 percent GDP growth in 2020-21.
CEA Subramanian: There is no better way to relate economics to the common person than by looking at the price of a plate of food paid by an Indian. Thalis have become more affordable since 2006-07
The difference in export performance between India and China can be explained by specialisation; says Subramanian - "China has specialised in labour-intensive factors, India needs to do the same."
Change in composition of Sensex over the years shows that pro-business policies give a level playing field, providing opportunities to all and keeping incumbents on their toes, says Subramanian. He added: "Laws which have outlived their relevance can cause unintended negative consequences. For example, The Essential Commodities Act needs to make a distinction between storage and hoarding."
CEA Subramanian: The Economic Survey posits that India’s aspiration to become a $5 trillion economy depends critically on strengthening the invisible hand of the market and supporting it with the hand of trust.
CEA Subramanian adds: "When there are large firms whose financial statements are not dependable, it creates ripple effects, affecting the credibility of statements of other firms too. If wealth had not been eroded by wilful defaulters, we could have spent almost double the amount on social sectors."
Evidence shows that the invisible hand of the market, and openness, enables growth at both aggregate and sectoral levels. Theseare the two pillars for Wealth Creation in the economy, Subramanian said. "Analysis of wealth creators by entrepreneurs shows that it benefits everyone," he added.
The Economic Survey 2020 said there may be a need to relax the fiscal gap target for FY20 to revive growth. "Considering the urgent priority of the Government to revive growth in the economy, the fiscal deficit target may have to be relaxed for the current year," it said. Read more here.
The NBFC sector, which has been struggling to stay solvent amid piling rubble of collapsing asset values and growing loan defaults, came out for extra emphasis in the Survey. “Problems faced by the NBFCs stemmed from their over-dependence on short-term wholesale funding from the liquid debt mutual funds,” the Survey said.
The Survey, the second one authored by CEASubramanian, flagged sluggish household spending, embattled non-banking finance companies (NBFCs), a wobbly world economy and lower tax revenue collections as the main pain points that need intensive care.It argued in favour of counter-cyclical fiscal measures to arrest the current slide, which may be seen as a nudge to the government to lower taxes to boost demand.
Read more here.
India has been a dominant economy for three-quarters of recorded economic history, such dominance happens by design, due to our emphasis on wealth: says CEA
"All groups of countries have slowed down and in a globalised economy, India too has felt the effect,", says CEA.
The Survey notes that the rise in core inflation in December suggests that demand pressure is building. It adds that growth uptick is expected in H2FY20, which makes a “case for the Monetary Policy Committee (MPC) to not respond to a transitory spike in CPI.”
It further sees evidence for “strong revision” of headline CPI to core inflation, and added that “green shoots are present” for growth in FY21, but improving composition, quality of government spending and crucial government steps, including infra pipeline would play a role.
Chief Economic AdvisorKrishnamurthyVSubramanianpresenting the document, Theme is "Wealth Creation", he says. Calls it a "synthesis between old and new".
