The Centre will present the Economic Survey 2021, which sets the stage for the Union Budget 2021, on January 29. The government’s Chief Economic Advisor (CEA) is the mastermind of the document, which reviews the vital elements of the Indian economy over the previous financial year.
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This year, CEA Krishnamurthy Subramanian is scheduled to hold a press conference at 2.30 pm on January 29 to discuss the survey, after Finance Minister Nirmala Sitharaman tables it in the Parliament.
The document is tabled in both Houses of Parliament – the Lok Sabha and the Rajya Sabha.
So, what questions does the Economic Survey answer?
The flagship, annual document of the Finance Ministry (presented by the Ministry's Department of Economic Affairs led by the CEA), reviews the developments that took place in the Indian economy over the past financial year.
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The Economic Survey is a longstanding tradition that was first presented in 1950-51. Over the last few years, it has been presented in two volumes - Volume I, Volume II and the statistical appendix.
The first volume typically outlines the challenges facing the Indian economy, while the second volume is generally a broad-based review of the year gone by. It also details major schemes run by the government as well as key policies and their outcomes.
The document further takes a look at the country’s economic prospects for the short-to-medium term. This year, in particular, the expectation is that the Economic Survey may also outline plans to put the economy back on track to achieving the Centre’s goal of a $5 trillion economy, which was set in 2019 but derailed due to the economic slowdown and the COVID-19 pandemic.
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The Economic Survey usually provides 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. It also puts out economic growth forecasts, giving out detailed reasons why it believes the economy will expand faster or decelerate.
But these four factors may be the most anticipated this year:
>> GDP growth for FY21: Gross domestic product (GDP) growth projections for FY21 will likely be “highly tracked” as it could offer cues on the government’s expectations for the economy and as the Central Statistics Office (CSO) data released earlier in January projected growth at 5 percent in 2019-20, lower than 7 percent estimated in July 2020.
The data is likely to clear understanding of where the economy is headed, and the possibility of green shoots in the broader view.
>> Jobs creation: The need for jobs creation has been an ongoing struggle for India and the government’s failure to create enough opportunities has been a platform for criticism by the Opposition. As such, data which industry and services have to absorb in the next decade? How many will they absorb if they continue creating jobs as they have in the past? Could the demographic dividend turn into a demographic curse as some have argued? The Economic Survey 2019-20 will likely have answers to these questions.
>> Goods and Services Tax (GST) data: While GST has consolidated an untidy patchwork of local and central duties, it has been a long drawn pain point since it was imposed in 2017.
GST rates of several goods and services have been changed several times already over the last 31 months. Questions around how far are we from reaching a steady-state on GST is a key one.
>> Nudge theory, behaviourial economics: Economic Survey 2020 favoured detailed application of "behavioural economics" and "nudge theory" as an instrument of change in India where social and religious norms play a dominant role in influencing behaviour.
This is based on the premise that decisions made by real people deviate from the impractical robots theorized in classical economics. Quoting the success of popular Government schemes in recent times like Beti Bachao, Beti Padhao and Swachh Bharat Mission, the Economic Survey said these schemes have successfully applied behavioural insights to enhance policy impact.
This year's Survey is expected to contain a chapter on a newer idea that needs to be brought on to mainstream policy practice from textbooks.
Economic Survey 2020
In 2020, the Economic Survey said there could be challenges on the fiscal front and noted that there "maybe need to relax fiscal deficit target for FY20 to revive growth and need counter-cyclical fiscal steps to boost demand."
The government also expected the economy to grow in the range of 6-6.5 percent in FY21 and 5 percent in FY20. (This was prior to COVID-19 pandemic and lockdowns in India).
Here are the key takeaways from last year's document:
>> Banks may remain risk-averse unless Insolvency and Bankruptcy Code (IBC) process speeds up
>> Low tax/GDP ratio constrained government infrastructure spends
>> Improvement in tax mop-up hinged on GST revenue buoyancy
>> Growth resurgence is expected to begin starting the second half of FY20
>> Length of the Indian business cycle appeared to be 13 quarters
>> See strong rebound in growth in FY21 on a low base
>> Cut in capex by the government may adversely hurt growth
>> See FY20 tax collections to be lower against estimates
>> High non-tax revenue growth is not sustainable year after year
>> GST buoyancy is key to Centre, State revenue position
>> Pace of GDP growth recovery will impact revenue collection
>> See room to further rationalise subsidies, especially food
>> Seeing progress, albeit slow, in implementation of IBC
>> Improving composition, the quality of government spending is crucial
>> Continued global trade tensions could hit India exports
>> Industrial activity has been rebounding, showing signs of pick up
>> Rise in core inflation in December suggests demand pressure is building
>> Rationalisation of subsidies could be important to expand fiscal headroom
>> US-Iran tensions may weaken FDI inflows, depreciate rupee
>> Global sentiment continues to be in favour of India
>> See case for aggressive disinvestment of central PSUs
>> Concerns of misestimated Indian GDP unsubstantiated by data, thus unfounded
>> Fiscal deficit of states within targets set out by FRBM Act
>> Suggest Employee Stock Ownership Plan for state-run bank employees
>> Government intervention to boost wealth can undermine markets
>> Need to address burgeoning food subsidy