Quizzes, discussions and everything related to IAS Mains


Economic Survey 2016-17 Chapter 1 | Economic Outlook and Policy Challenges | Part 1

Before we take up chapter 1 for discussion, let’s first look at the broad structure of this year’s Economic Survey. Structurally, this year’s Economic Survey is divided into three sections:

Section I: The Perspective

This section contains a Broad Overview of the recent developments and India’s Economic Vision:

  • Chapter 1: It provides a broad overview of recent developments and a near-term outlook.
  • Chapter 2: It takes a long-term perspective to analyse where India stands on the underlying economic vision, arguing that overcoming some meta-challenges will require broader societal shifts in ideas.

Section II: The Proximate –

It deals with following four pressing near-term issues:

  • Chapter 3: Demonetisation,
  • Chapter 4: The festering twin balance sheet challenge and ways to address it,
  • Chapters 5 and 6: Fiscal policy of the Center and the States, and
  • Chapter 7: Labour-intensive employment creation.

It also includes a review of sectoral developments in the first half of the year (Chapter 8) and a detailed discussion on Universal Basic Income in Chapter 9.

Section III: The Persistent –

It deals with the more medium term issues.

  • Chapter 10: Income, Health and Fertility
  • Chapter 11: One Economic India
  • Chapter 12: Migration in India
  • Chapter 13: Impact of Redistributive and Natural Resources on States’ Development.
  • Chapter 14: From Competitive Federalism to Competitive Sub-Federalism: Cities as Dynamos

Keeping this basic structure in mind will help you understand the survey better. Let’s now begin with the first chapter!

Chapter 1- Economic Outlook and Policy Challenges

An Overview of the state of Indian Economy:

  • India’s macroeconomic indicators are robust and healthy, the key features being:
    • Declining inflation
    • Improving fiscal and external sector
    • Also, India is among the world’s fastest growing economies.
  • To ensure that this healthy growth and stable macroeconomic indicators push India onto a trajectory of sustained growth of 8-10 percent, shifts in the underlying vision will be needed to overcome the major challenges ahead.
  • Having said that, India is also one of few economies enacting major structural reforms. This year has been marked by several historic economic policy developments on both domestic as well as the global front. The key developments  being:

While these developments will be discussed in detail in the next chapters, a brief overview is provided here for a broad understanding.

Key Developments on the Domestic Front:

1. Demonetization: The two large denomination notes – Rs 500 and 1000 were “demonetised”, ceasing to be legal tender except for a few specified purposes on November 8, 2016. This exercise is expected to:

  • Create short-term hardships in informal and cash dependent sectors of the economy, and
  • Provide the basis for long-term benefits in terms of reduced corruption, greater digitalisation, and greater formalisation of the economy.

[Note: Demonetisation and its likely impacts on the economy have been discussed in detail in Chapter- 3.]

2. Passage of the GST Bill:

Another transformational step was the passage of GST (Goods and Services Tax) bill in the Parliament. It is a bold new experiment in the governance of India’s cooperative federalism. The GST will:

  • Create a common Indian market for goods and services,
  • Improve tax compliance,
  • Boost investment and growth, and
  • Improve governance.

(To read more about how the GST works, click here. To keep a tab on the latest news and issues follow the news-story on GST here).

3. The bankruptcy laws were overhauled to address the “exit” problem that pervades the Indian economy (The exit problem or the chakravyuh challenge was highlighted by the Economic Survey 2015-16. To read up more about what an exit problem means, click here; To read more about the reforms in bankruptcy laws – i.e. the Insolvency and Bankruptcy Code, 2016, click here).

4. Monetary Policy Framework: The institutional arrangements on monetary policy were codified with the Reserve Bank of India (RBI) to ensure that inflation control will be less susceptible to the whims of individuals and the caprice of governments.

5. The legal basis for Aadhaar was solidified, to realize the long-term gains from the JAM trifecta (Jan Dhan-Aadhaar-Mobile), as quantified in last year’s Survey. (To read more the JAM Trinity, click here)

6. The NPCI (National Payment Corporation of India) successfully launched United Payment Interface (UPI) to make electronic transactions faster and simpler.

  • UPI is a payment application by which a recipient can initiate the payment request from a smart-phone.
  • The money can be transferred using just the phone number or the Aadhaar number of the recipient.
  • UPI allows a person to operate all of its bank accounts using UPI mobile app. Thus by facilitating interoperability, it will unleash the power of mobile phones in achieving digitalisation of payments and financial inclusion.

7. Further FDI reform measures were implemented, allowing India to become one of the world’s largest recipients of foreign direct investment.

8. The government also enacted a package of measures to assist the clothing sector that by virtue of being export oriented and labour intensive can boost employment.

These measures have cemented India’s reputation as one of the few bright spots in an otherwise grim global economy. But at the same time, societal shifts in ideas and narratives are needed to overcome the three long-standing meta-challenges:

  1. Inefficient redistribution;
  2. Strengthening state capacity in delivering essential services and regulating markets, and
  3. Dispelling the ambivalence about protecting property rights and embracing the private sector.

[These will be taken up in detail in chapter#2]

Key Developments on the International Front and their likely impact on India:

For India, three external developments are of significant consequence:

  1. US Elections:
    • India’s capital flows and exchange rates are likely to be impacted by:
      1. The change in the outlook for global interest rates as a result of the US elections.
      2. The likely changes in the US fiscal and monetary policy because of the regime change.
  1. Political outlook for Globalisation:
    • Protectionist policies are expected to make a comeback in wake of the political backlash against globalisation in the advanced countries.
    • This changed outlook is likely to affect India’s export and growth prospects.
  2. US and the Chinese Economy:
    • Rise of dollar will have implications on China’s currency and currency policy.
    • If China is able to successfully re-balance its economy and keep up the growth, the spillover effects on India and the World will be positive.
    • But, if US and China indulge in some type of trade war, then it will be disastrous for the World economy.

Questions, suggestions and comments

  1. Profile photo of Sammil Khan Sammil Khan

    What are the chapters come under Volume 1 of TS 20. Please clarify

    1. Profile photo of Discuss Discuss

      Hi, thats a misprint. Since it is a CA test, no Eco Survey chapters there. There is a separate TS for Eco Survey.

  2. Profile photo of TEJ. G TEJ. G

    part 2 link must be provided here only

  3. Profile photo of Rohit Kumar Rohit Kumar

    What about the impact of Brexit on Indian Economy?

  4. Profile photo of abhishek abhishek

    Minor Correction – UPI is Unified Payments Interface.

    1. Profile photo of Shashank Thal Shashank Thal

      Good Observation.

Highest Rated App. Over 3 lakh users. Click to Download!!!