Explained: Economic Survey 2019 — new ideas to policy prescriptions

What is Economic Survey?

• Each year, a day before the presentation of the full-fledged annual Union Budget, the country Chief Economic Advisor (CEA) releases the Economic Survey.
• However, notwithstanding the close proximity of its release with the Union Budget, the Economic Survey is not exactly a predictor of the Budget proposals.
• Still, it is a very important document because it provides an authoritative, detailed and official annual summary of the current state of play in the Indian economy.

What it consists of?

• Beyond the summary, the ES paints a variety of future scenarios, highlighting likely challenges and pointing to possible solutions.
• In the past few years, the ES has been presented in two volumes.
• Volume 1 focussed on research and analysis about the challenges — both contemporary and long-term — facing the Indian economy.
• Volume 2 provided the more descriptive review of the fiscal year, encompassing all the major sectors of the economy.

Importance of Economic Surveys

• Apart from providing a comprehensive snapshot of the various sectors of the economy, the ES is also used as a sounding board for introducing new policy ideas and triggering fresh debates.
• As the years have rolled by, successive CEAs have used every aspect of the Economic Survey to convey some key idea.
• For instance, the colour of the 2018 Survey’s cover — pink — was chosen “as a symbol of support for the growing movement to end violence against women, which spans continents”.

Key takeaways from Economic Survey 2018-19

Slowest projection of growth

• The ES has projected that economic growth in the current fiscal year could rise to 7% from the 6.8% in 2018-19 — the slowest rate of growth in five years.

Macroeconomic Indicators

• The survey has flagged the challenges on the fiscal front following an economic slowdown impacting tax collections amid an expected surge in agri-spending.
• It has underlined the need for India to shift gears to accelerate and sustain a real GDP growth rate of 8% in order to achieve the target of becoming a $5 trillion economy by 2025.
• It flags the need for a “virtuous cycle” of savings, investment and exports to be catalyzed and supported by a favorable demographic phase required for sustainable growth.
• Private investment has been highlighted as a key driver for demand, capacity, labor productivity, new technology, creative destruction and job creation.

Era for behavioral change

• The Survey lays out an agenda for behavioral change by applying the principles of behavioral economics to several issues.
• It includes gender equality, a healthy and beautiful India, savings, tax compliance and credit quality.
• It highlights a transition from ‘Beti Bachao 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’ and from ‘Tax evasion’ to ‘Tax compliance’.

Policy prescriptions

• The Survey flags the case for intervention in the case of “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.
• In this context, it calls for a sunset clause of less than 10 years, with necessary grand-fathering, for all size-based incentives and deregulating labor law restrictions to create significantly more jobs.
• It calls for a need to ramp up capacity in the lower judiciary, including a focus on delays in dispute resolution.
• Contract enforcement biggest constraint to improve EODB ranking; much of the problem is concentrated in the lower courts.
• It also calls for policy changes to lower overall lifetime ownership costs and make electric vehicles an attractive alternative to conventional vehicles.

Problem areas

• While the investment rate was expected to pick up following improvement in consumer demand and bank lending, the GST, farm schemes will all pose challenges on the fiscal front.
• Fiscal deficit has been pegged at 3.4% of GDP for 2018-19.
• There are apprehensions of slowing growth, which will have implications for revenue collections.
• Crude oil prices are projected to decline in 2019-20, which could push consumption.
• Flags need to gear up for ageing population; necessitating more healthcare investment, increasing retirement age in a phased manner.