Current News Feed

Towards a $5 trillion economy: Economic Survey shows the way forward, private investment must be a key driver

The Times of India    July 5, 2019, 2:00 AM IST 

In this year, marking the 150th birth anniversary of Mahatma Gandhi, we are at a crucial juncture in history with an immense opportunity to give shape to ‘New India’. Economic Survey 2018-19 has, therefore, adopted the theme of realising Prime Minister Narendra Modi’s vision of a $5 trillion economy by 2024-25.

The Survey employs unfettered, “blue sky” thinking to evolve an appropriate economic model for India, and also lays down a blueprint to enable a “shifting of gears” through a virtuous cycle of growth, to sustain a real GDP growth rate of 8%. This endeavour is reflected in the sky blue cover of the Survey and the cover design depicting several inter-linked gears.

The Survey departs from traditional thinking by viewing the economy as being either in a virtuous or a vicious cycle, and thus never in equilibrium. Rather than viewing the national priorities of fostering economic growth, demand, exports and job creation as operating in ‘silos’, the Survey views these macroeconomic phenomena as complementary to each other. The cover design captures the idea of complementary inter-linkages between these macroeconomic variables.

International experience, especially from high-growth East Asian economies, suggests that sustained high rate of growth needs a catalytic virtuous cycle of savings, investment and exports supported by a favorable demographic phase. Investment, especially private investment, is the key driver that drives demand, creates capacity, increases labour productivity, introduces new technology, allows creative destruction, and generates jobs. This is another departure from traditional economic thinking based on consumption-led economic growth.

After laying out this strategic blueprint for fulfilling the vision of #Economy@5trillion, the Survey describes some of the tactical devices required to navigate an uncertain world in constant disequilibrium. The Survey delineates the impact created by government’s flagship initiatives such as Swachh Bharat Mission, Jan Dhan Yojana and the Beti Bachao Beti Padhao, which provide testimony to the potential for behavioural change in India. Given our rich cultural and spiritual heritage, social norms play a very important role in shaping our behaviour.

Behavioural economics provides the necessary tools and principles to not only understand how norms affect behaviour but also to utilise these norms to effect behavioural change. The Survey, therefore, lays out an ambitious agenda for behavioural change by applying the principles of behavioural economics to several issues including gender equality, a healthy and beautiful India, savings, tax compliance and credit quality.

The Survey also focusses on nourishing MSMEs to create jobs and become more productive so that they can become internationally competitive. It suggests that all size based incentives must have a sunset clause of less than 10 years with necessary grand-fathering. Further, deregulating labour law restrictions can create significantly more jobs, as seen by the recent changes in Rajasthan when compared to the rest of the states.

Heading into a century where data has become the new oil and analytics from data the new tool for decision making, the Survey foresees countless opportunities in creating data as a public good “of the people, for the people and by the people”. Governments already hold a rich repository of administrative, Survey, institutional and transactions data about citizens, but these data are scattered across numerous government bodies.

Utilising the information embedded in these distinct datasets would, inter alia, enable government to enhance ease of living for citizens, enable truly evidence-based policy, improve targeting in welfare schemes, integrate fragmented markets, bring greater accountability in public services and generate greater citizen participation in governance.

The Survey recognises that the single biggest constraint to ease of doing business in India is the ability to enforce contracts and resolve disputes. This is not surprising given the 3.5 crore cases pending in the judicial system. A case clearance rate of 100% (ie zero accumulation) can be achieved with the addition of merely 2,279 judges in the lower courts and 93 in high courts even without efficiency gains.

This is already within sanctioned strength and only needs filling vacancies. Scenario analysis of efficiency gains needed to clear the backlog in five years suggests that the required productivity gains are ambitious, but achievable. Given the potential economic and social multipliers of a well-functioning legal system, this may well be the best investment India can make.

To demystify the Survey and enable common people to access the ideas in it, the presentation of the Survey has important changes. Every chapter has an abstract and a “chapter at a glance” which enable the reader to capture the gist of the chapter. Furthermore, these have been supplemented with short two minute videos on each chapter where we explain the main idea of the chapter. The videos have been constructed both in English and in Hindi to enable maximum number of readers to understand the Survey.

The Survey is a humble and sincere effort to live up to the expectation of being an indispensable guide for following, understanding, and rethinking the Indian economy.

Source, TOI