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Past Economic Surveys put it best: Private investment is India’s best growth mantra

Despite the challenging global economy and next year’s general elections, Economic Survey must prod government to open up further

January 30, 2023 / 11:32 AM IST
Global economic conditions and India’s political situation suggest that the government could look at a Budget which pushes for higher government intervention and a more closed economy.(Representative image)

Global economic conditions and India’s political situation suggest that the government could look at a Budget which pushes for higher government intervention and a more closed economy.(Representative image)

The Government will release the customary Economic Survey for 2022-23 before the Union Budget for 2023-24. The Survey and the Budget will be presented under trying times for the global economy. The world economy is expected to slow down with nearly one third of countries expected to face recession in 2023. The South Asian economies, particularly Pakistan, are undergoing a major economic crisis. The Chinese economy is opening up again after its stringent lockdowns. The Indian economy is much better placed but next year we have general elections.

All these global economic conditions and India’s political situation suggest that the government could look at a Budget which pushes for higher government intervention and a more closed economy. However, the government should avoid this approach and instead reread some of the analysis from previous Economic Surveys which argues for the opposite: more private sector and open economy.

Economic Survey’s Relevance

Historically, there have been broadly four objectives of the Economic Survey.

* First, review the developments in the Indian economy over the previous 12 months.

* Second, summarise the performance on major development programmes.

* Third, highlight the policy initiatives of the government.

* Fourth, discuss the prospects of the economy in the short to medium term.

A fifth objective, suggesting economic policy and reform ideas to the government on wide-ranging economic issues, was first added by then Chief Economic Adviser (CEA) Kaushik Basu in the Economic Survey of 2009-10. This came in the form of the second chapter titled as Micro-Foundations of Inclusive Growth. The chapter “suggested” that “If we can put into effect some important structural policy measures, there is no reason why India cannot achieve double-digit gross domestic product (GDP) growth and a rapid diminution of poverty”.

For the next few years, Chapter 2 became the highlight of the Economic Survey as it was seen as an imprint of the CEA on the Survey. In 2012-13, CEA Raghuram Rajan suggested “Seizing the Demographic Dividend”.  From 2014-15 onwards, this one chapter was expanded to multiple chapters. These multiple “forward looking” policy chapters were included in Volume 1 and traditional economic survey chapters were compiled in Volume 2.

Prioritising Private Investment 

The first chapter of the 2018-19 Survey argued that private investment is the key to growth, jobs and export. This was the first Survey of the new government elected in 2019 which gave a vision of becoming a $5 trillion economy by 2025. A chapter on Micro, Small & Medium Enterprises suggested how MSMEs can be converted from dwarfs to giants by deregulating labour law restrictions.

The budget2020-21/economicsurvey/index.php">2019-20 Survey expanded on the earlier survey theme and had multiple chapters which suggested the need to focus on private investment, innovation, ease of doing business and so on. There is a chapter titled ‘Undermining Markets: When Government intervention hurts more than it helps’. The chapter makes the case that “each department and ministry in the Government must systematically examine areas where the Government needlessly intervenes and undermines markets”.

The chapter mentions three such interventions:

* Blanket limit on prices of commodities under Essential Commodities Act

* Regulation of prices of drugs

* Granting debt waivers.

However, it does not rule out government intervention completely but only in the areas where it supports and not hinders markets. There are other chapters, one focusing on nurturing grassroots entrepreneurship, another promoting a pro-business climate against a pro-crony climate, and yet another targeting ease of doing business. There is also a chapter on creating jobs and growth by encouraging exports in network products which link India to the global value chain.

Process Reforms, Research & Innovation

The 2020-21 Survey focused on healthcare amid the outbreak of the Covid pandemic. While arguing to spread healthcare across the country, there were chapters on process reforms and innovation. The chapter on process reforms argued that India suffers from overregulation. The focus of policymakers is always on prescriptive regulation over supervision.

Instead the optimal solution is to combine simple regulations with transparent supervision and decision making process. The chapter on innovation argues how India has improved in global innovation rankings but much more needs to be done. It asked the private sector to increase investments on “Research & Development (R&D), R&D personnel and researchers, and share in patents filed in the country”.

The 2021-22 Survey moved away from the two volume approach back to the traditional one volume approach. The Preface to the Survey explained that though the two volume approach allowed “space for bringing in new ideas and themes”, it was also becoming unwieldy as the document was nearly 900 pages.

However, the Survey did add a new chapter which had satellite and geo-spatial images of the country to show economic developments across multiple parameters– urbanisation, infrastructure, environmental impact, farming practices and so on. The Survey also mentioned the importance of High Frequency Indicators to track economic developments.

To sum up, the Economic Surveys of the last few years have proposed quite a few ideas on how private investment is crucial for Indian economic growth, jobs and exports. Whatever approach the Economic Survey of 2022-23 takes, the Surveys should continue to suggest that the government back private investment, reduce government intervention, and push reforms for future growth.

Amol Agrawal is faculty at Ahmedabad University. Views are personal and do not represent the stand of this publication.SOCIAL: Previous Economic Surveys have urged governments to support private investment. This year’s Eco Survey must do the same and prod the government to open up further despite the weak global economy, writes Amol Agrawal. 

Amol Agrawal is faculty at Ahmedabad University.