Finance Minister Nirmala Sitharaman Thursday tabled the Economic Survey 2018-19 in Parliament. The document, prepared by Chief Economic Adviser Krishnamurthy Subramanian, projected the GDP growth at 7 per cent for financial year 2019-20. It also offered a blueprint to achieve Narendra Modi government’s target of making India a $5 trillion economy by 2024-25.
ThePrint asks: Is the 2019 Economic Survey being excessively optimistic about India’s economy?
Survey presents a candid assessment of various factors responsible for slowdown in economy
The Economic Survey is a flagship document of the government. It presents an assessment of the economy (highlighting the government’s achievements) and outlines a medium-term growth path.
The Economic Survey 2018-19 presents a blueprint for growth and jobs to achieve the government’s objective of making India a $5 trillion economy by 2024-25.
The survey acknowledges the slowdown in the economy and presents a candid assessment of the various factors responsible for it. It notes that private consumption – the prime driver of growth – slowed down in the last two quarters in the previous year. It also acknowledges problems in the farm sector and the dampening impact of the NBFC crisis on consumption.
The Economic Survey projects a GDP growth of 7 per cent for the current fiscal. While projecting a moderate pick-up in growth, it presents both the downside risks and the prospects for higher growth. While accommodative monetary policy and a pick-up in bank credit augur well for higher growth, the Economic Survey admits that the trajectory of growth would depend on monsoon and farm prices.
Encouragingly, the Economic Survey makes a case for promoting investment – in particular, ‘private investment’, and emphasises on the role that private investment can play in generating employment and fostering high growth. It advocates greater policy certainty and reduced cost of capital for higher investment.
Views are personal.
Economic Survey is optimistic because it focuses on investment, when the problem is demand
Associate Professor, Centre for Economic Studies and Planning, JNU
The Economic Survey of 2018-19, is most definitely an optimistic document as the entire survey focuses mainly on investment, which we have been trying to increase for the past five years. However, the actual problem is demand. Just shouting about investment from the rooftops will not fix the economy.
The Economic Survey itself states that the growth rate in agriculture has slowed down, which is the primary activity of our economy. The 5.8 per cent growth rate in the last quarter of 2018-19, was the lowest the country has seen in recent history. Yet, the survey does not provide an analysis or explanation for these figures.
The main problem with it is that it does not provide a diagnosis for the current state of the economy and merely states goals for the future. To reach a $5 trillion economy by 2024-25, a growth rate of at least 8 per cent is required and there is no explanation on how the government plans to reach this figure. The domestic economic environment has gone from bad to worse and the international economy is very unstable. The US is constantly imposing tariffs on Indian exports, which has resulted in Indian exports also going down.
To say that it is extremely optimistic document is an understatement. The Economic Survey is a government document and not an academic paper. It needs to provide an assessment of the Indian economy, which it has failed to do.
Economic Survey is both realistic and aspirational at the same time
Researcher & senior fellow, Pahle India Foundation
The Economic Survey is both realistic and aspirational at the same time. While the macroeconomic figures for current account deficit and fiscal deficit seem appropriate, a 7 per cent growth rate for the next year will depend on whether private consumption and investment see significant growth. Consumption has slowed down and all signs point towards some sort of stimulus, which will impact the fiscal deficit. The stimulus could come in the form of government expenditure in infrastructure, or the more traditional method of putting money in the hands of the taxpayer. The latter is what is required for spurring private investment.
For private investment to take place, credit growth is essential. The NBFC sector is yet to bottom out. In fact, with the RBI now all set to monitor housing finance companies, there will in all probability be a further slowdown in credit. Credit to MSMEs may have picked up a tad, but access to credit is still their biggest woe and until targeted policies can ensure easy access to credit, 7 per cent growth may be difficult to achieve.
Realistically, the survey has prioritised data, contract enforcement, and for the first time, the importance of behavioural change as central to growth, and this is most certainly the right way to go.
Numbers that the Economic Survey presents to support its argument are far from convincing
Professor at the National Institute of Advanced Studies
The Economic Survey’s projection of 7 per cent growth rate is another triumph of hope over experience. In a bout of Keynesianism, the Survey looks to investment to begin a cycle of virtuous growth. The numbers it presents to support its argument are far from convincing.
It lays a great deal of emphasis on the fact that the growth rate in investment has risen from 9.3 per cent in 2017-18 to 10 per cent in 2018-19. It does not pay much attention to the fact that an increase of a full percentage point in the previous year was a precursor to the current slowdown. It also ignores the fact that gross savings, including those of the private corporate sector and the household sector, remain below levels reached in 2015-16.
Although it takes an optimistic view of consumer demand, this is in direct contrast to the inventory numbers emerging from various sectors of the economy. The Survey does mention that its projections are also based on “the structural reforms being undertaken by the government”. Is that a signal that we should expect the unexpected from Finance Minister Nirmala Sitharaman’s first Budget?
By Fatima Khan and Revathi Krishnan