GK - India - SPLessons

Economic Survey Highlights 2018-2019

SPLessons 5 Steps, 3 Clicks
5 Steps - 3 Clicks

Economic Survey Highlights 2018-2019

shape Introduction

The Union Minister for Finance and Corporate Affairs, Smt. Nirmala Sitharaman submitted the Economic Survey 2018-19 in the Parliament on 04-07-2019. The article Economic Survey Highlights 2018-2019 will explore the complete key highlights of Economic Survey 2018-2019.

Source: PIB

shape Economy

Private Investment as the Key Driver of Growth, Jobs, Exports and Demand:

  • The survey states that pathways for trickle-down opened up during the last five years; and benefits of growth and macroeconomic stability reached the bottom of the pyramid.

  • The sustained real GDP growth rate of 8% needed for a $5 trillion economy by 2024-25.

  • “Virtuous Cycle” of savings, investment and exports catalyzed and supported by a favorable demographic phase required for sustainable growth.

  • Private investment– key driver for demand, capacity, labor productivity, new technology, creative destruction, and job creation.

  • Survey departs from traditional Anglo-Saxon thinking by viewing the economy as being either in a virtuous or a vicious cycle and thus never in equilibrium.

  • Key ingredients for a self-sustaining virtuous cycle:

    • Presenting data as a public good.

    • Emphasizing legal reforms.

    • Ensuring policy consistency.

    • Encouraging behavior change using principles of behavioral economics.

    • Nourishing MSMEs to create more jobs and become more productive.

    • Reducing the cost of capital.

    • Rationalizing the risk-return trade-off for investments.

Policy for Real People, Not Robots:

  • Decisions by real people deviate from impractical robots theorized in classical economics.

  • Behavioral economics provides insights to ‘nudge’ people towards desirable behavior.

  • Key principles of behavioral economics:

    • Emphasizing the beneficial social norm.

    • Changing the default option.

    • Repeated reinforcements.

  • Using insights from behavioral economics to create an aspirational agenda for social change:

    • From ‘Beti Baco Beti Padhao’ to ‘BADLAV’ (Beti Aapki Dhan Lakshmi Aur Vijay Lakshmi).

    • From ‘Swachh Bharat’ to ‘Sundar Bharat’.

    • From ‘Give it up‘ for the LPG subsidy to ‘Think about the Subsidy’.

    • From ‘Tax evasion’ to ‘Tax compliance’.

Nourishing Dwarfs to become Giants: Reorienting policies for MSME Growth:

  • Survey focuses on enabling MSMEs to grow for achieving greater profits, job creation and enhanced productivity.

  • Dwarfs (firms with less than 100 workers) despite being more than 10 years old, account for more than 50% of all organized firms in manufacturing by number.

  • Contribution of dwarfs to employment is only 14% and productivity is a mere 8%.

  • Large firms (more than 100 employees) account for 75% employment and close to90% of productivity despite accounting for about 15% by number.

  • Unshackling MSMEs and enabling them to grow by way of:

    • Asunset clause of fewer than 10 years, with necessary grand-fathering, for all size-based incentives.

    • Deregulating labor law restrictions to create significantly more jobs, as evident from Rajasthan.

    • Re-calibrating Priority Sector Lending (PSL) guidelines for direct credit flow to young firms in high employment elastic sectors.

    • Survey also focuses on service sectors such as tourism, with high spillover effects on other sectors such as hotel & catering, transport, real estate, entertainment, etc., for job creation.

Data “Of the People, By the People, For the People”:

  • Society’s optimal consumption of data is higher than ever given technological advances in gathering and storage of data.

  • As data of societal interest is generated by the people, data can be created as a public good within the legal framework of data privacy.

  • The government must intervene in creating data as a public good, especially of the poor and in social sectors.

  • Merging the distinct datasets held by the Government already would generate multiple benefits.

Ending Matsyanyaya: How to Ramp up Capacity in the Lower Judiciary:

  • Delays in contract enforcement and disposal resolution are arguably now the single biggest hurdle to the ease of doing business and higher GDP growth in India.

  • Around 87.5 percent of pending cases are in the District and Subordinate Courts.

  • 100 percent clearance rate can be achieved by filling out merely 2279 vacancies in the lower courts and 93 in High Courts.

  • States of Uttar Pradesh, Bihar, Odisha and West Bengal need special attention.

  • Productivity improvements of 25 percent in lower courts, 4 percent in High Courts and 18 percent in Supreme Court can clear backlog.

How does Policy Uncertainty affect Investment?

  • Significant reduction in Economic Policy Uncertainty in India over the last one decade, even when economic policy uncertainty increased in major countries, especially the U.S.

  • Uncertainty dampens investment growth in India for about five quarters.

  • Lower economic policy uncertainty can foster a salutary investment climate.

  • Survey proposes a reduction in economic policy uncertainty by way of:

    • Consistency of actual policy with forwarding guidance.

    • Quality assurance certification of processes in Government departments.
Planning Public Good Provision for the 21st Century:

  • Sharp slowdown in population growth expected in next 2 decades. Most of India to enjoy demographic dividend while some states will transition to ageing societies by 2030s.

  • National Total Fertility Rate expected to be below replacement rate by 2021.

  • Working-age population to grow by roughly 9.7mn per year during 2021-31 and 4.2mn per year during 2031-41.

  • Significant decline to be witnessed in elementary school-going children (5-14 age group) over the next two decades.

  • States need to consolidate/merge schools to make them viable rather than build new ones.

  • Policy makers need to prepare for aging by investing in health care and by increasing the retirement age in a phased manner.

From Swachh Bharat to Sundar Bharat via Swasth Bharat:

  • Traceable health benefits brought about by Swachh Bharat Mission (SBM).

  • 93.1% of the households have access to toilets.

  • 96.5% of those with access to toilets are using them in rural India.

  • 100% Individual Households Latrine (IHHL) Coverage in 30 states and UTs.

  • Financial savings from a household toilet exceed the financial costs to the household by 1.7 times on average and 2.4 times for poorest households.

  • Environmental and water management issues need to be incorporated in SBM for sustainable improvements in the long-term.

Enabling Inclusive Growth through Affordable, Reliable and Sustainable Energy:

  • 2.5 times increase in per capita energy consumption needed for India to increase its real per capita GDP by $5000 at 2010 prices, and enter the upper-middle income group.

  • 4 times increase in per capita energy consumption needed for India to achieve 0.8 Human Development Index score.

  • India now stands at 4th in wind power, 5th in solar power and 5th in renewable power installed capacity.

  • Rs 50,000 crore saved and 108.28 million tonnes of CO2 emissions reduced by energy efficiency programs in India.

  • Share of renewable (excluding hydro above 25 MW) in total electricity generation increased from 6% in 2014-15 to 10% in 2018-19.

  • Thermal power still plays a dominant role at 60% share.

  • Market share of electric cars only 0.06% in India while it is 2% in China and 39% in Norway.

  • Access to fast battery charging facilities needed to increase the market share of electric vehicles.

Effective Use of Technology for Welfare Schemes – Case of MGNREGS:

  • Survey says that the efficacy of MGNREGS increased with the use of technology in streamlining it.

  • Significant reduction in delays in the payment of wages with the adoption of NeFMS and DBT in MGNREGS.

  • Demand and supply of work under MGNREGS increased, especially in distressed districts.

  • Vulnerable sections of the society viz. women, SC and ST workforce increased under MGNREGS during economic distress.
Redesigning a Minimum Wage System in India for Inclusive Growth:

  • Survey proposes a well-designed minimum wage system as a potent tool for protecting workers and alleviating poverty.

  • Present minimum wage system in India has 1,915 minimum wages for various scheduled job categories across states.

  • 1 in every 3 wage workers in India not protected by the minimum wage law.

  • The survey supports the rationalization of minimum wages as proposed under the Code on Wages Bill.

  • Minimum wages to all employment/workers proposed by the Survey.

  • National Floor Minimum Wage’ should be notified by the Central Government, varying across five geographical regions.

  • Minimum wages by states should be fixed at levels not lower than the ‘floor wage’.

  • Minimum wages can be notified based either on the skills or on geographical region or on both grounds.

  • Survey proposes a simple and enforceable Minimum Wage System using technology.

  • ‘National level dashboard’ under the Ministry of Labour & Employment for regular notifications on minimum wages, proposed by the Survey.

  • The toll-free number to register a grievance on non-payment of the statutory minimum wages.

  • Effective minimum wage policy as an inclusive mechanism for more resilient and sustainable economic development.

Social Infrastructure, Employment and Human Development:

  • The public investments in social infrastructure like education, health, housing and connectivity is critical for inclusive development.

  • Government expenditure (Centre plus States) as a percentage of GDP on

    • Health: increased to 1.5 percent in 2018-19 from 1.2 percent in 2014-15.

    • Education: increased from 2.8 percent to 3 percent during this period.

  • Substantial progress in both quantitative and qualitative indicators of education is reflected in the improvements in Gross Enrolment Ratios, Gender Parity Indices and learning outcomes at primary school levels.

  • Encouraging Skill Development by:

    • Introduction of the skill vouchers as a financing instrument to enable youth to obtain training from any accredited training institutes.

    • Involving industry in setting up of training institutes in PPP mode; in curriculum development; provision of equipment; training of trainers, etc.

    • Personnel of Railways and para-military could be roped in for imparting training in difficult terrains.

    • Create a database of Instructors, skill mapping of rural youth by involving local bodies to assess the demand-supply gaps are some of the other initiatives proposed.

  • Net employment generation in the formal sector was higher at 8.15 lakh in March 2019 as against 4.87 lakh in February 2018 as per EPFO.

  • Around 1, 90, 000 km of rural roads constructed under Pradhan Mantri Gram Sadak Yojana (PMGSY) since 2014.

  • About 1.54 crore houses completed under Pradhan Mantri Awas Yojana (PMAY) as against a target of 1 crore pucca houses with basic amenities by 31st March 2019.

  • Accessible, affordable and quality healthcare is provided through the National Health Mission and Ayushman Bharat scheme for a healthy India.

  • Alternative healthcare, National AYUSH Mission launched to provide cost-effective and equitable AYUSH healthcare throughout the country to address the issue of affordability, by improving access to these services.

  • Employment generation scheme, MGNREGA is prioritized by increasing actual expenditure over the budgetary allocation and an upward trend in budget allocation in the last four years.

  • Services sector (excluding construction) has a share of 54.3 per cent in India’s GVA and contributed more than half of GVA growth in 2018-19.

  • The IT-BPM industry grew by 8.4 percent in 2017-18 to US$ 167 billion and is estimated to reach US$ 181 billion in 2018-19.

  • The services sector growth declined marginally to 7.5 percent in 2018-19 from 8.1 percent in 2017-18.

    • Accelerated sub-sectors: Financial services, real estate, and professional services.

    • Decelerated sub-sectors: Hotels, transport, communication and broadcasting services.

  • Services share in employment is 34 percent in 2017.

  • Tourism:

    • 10.6 million foreign tourists received in 2018-19 compared to 10.4 million in 2017-18.

    • Forex earnings from tourism stood at US$ 27.7 billion in 2018-19 compared to US$ 28.7 billion in 2017-18.

  • Overall Index of Eight Core Industries registered a growth rate of 4.3 percent in 2018-19.

  • India’s ranking improved by 23 to 77th position in 2018 among 190 countries assessed by the World Bank Doing Business (DB) Report, 2019.

  • Road construction grew @ 30 km per day in 2018-19 compared to 12 km per day in 2014-15.

  • Rail freight and passenger traffic grew by 5.33 percent and 0.64 percent respectively in 2018-19 as compared to 2017-18.

  • Total telephone connections in India touched 118.34 crores in 2018-19

  • The installed capacity of electricity has increased to 3, 56,100 MW in 2019 from 3, 44,002 MW in 2018.

  • Public-Private Partnerships are quintessential for addressing infrastructure gaps

  • Building sustainable and resilient infrastructure has been given due importance with sector-specific flagship programs such as SAUBHAGYA scheme, PMAY, etc

  • Institutional mechanism is needed to deal with time-bound resolution of disputes in infrastructure sector

  • Gross Capital Formation (GCF) in agriculture as percentage of GVA marginally declined to 15.2 per cent in 2017-18 as compared to 15.6 per cent in 2016-17.

  • The public sector GCF in agriculture as a percentage of GVA increased to 2.7 percent in 2016-17 from 2.1 percent in 2013-14.

  • Women’s participation in agriculture increased to 13.9 percent in 2015-16 from 11.7 percent in 2005-06 and their concentration is highest (28 percent) among small and marginal farmers.

  • A shift is seen in the number of operational land holdings and area operated by operational land holdings towards small and marginal farmers.

  • 89% of the groundwater extracted is used for irrigation. Hence, the focus should shift from land productivity to ‘irrigation water productivity’. The thrust should be on micro-irrigation to improve water use efficiency.

  • Fertilizer response ratio has been declining over time. Organic and natural farming techniques including Zero Budget Natural Farming (ZBNF) can improve both water use efficiency and soil fertility.

  • Adopting appropriate technologies through Custom Hiring Centers and implementation of ICT are critical to improving resource-use efficiency among small and marginal farmers.

  • Diversification of livelihoods is critical for inclusive and sustainable development in agriculture and allied sectors. Policies should focus on

    • Dairying as India is the largest producer of milk.

    • Livestock rearing particularly of small ruminants.

    • Fisheries sector, as India is the second largest producer.
  • Financial Year 2018-19 ended with fiscal deficit at 3.4 per cent of GDP and debt to GDP ratio of 44.5 per cent (Provisional).

  • As per cent of GDP, total Central Government expenditure fell by 0.3 percentage points in 2018-19 PA over 2017-18:

    • 0.4 percentage point reduction in revenue expenditure and 0.1 percentage point increase in capital expenditure.

  • States’ own tax and non-tax revenue displays robust growth in 2017-18 RE and envisaged to be maintained in 2018-19 BE.

  • General Government (Centre plus states) on the path of fiscal consolidation and fiscal discipline.

  • The revised fiscal glide path envisages achieving a fiscal deficit of 3 percent of GDP by FY 2020-21 and Central Government debt to 40 percent of GDP by 2024-25.