Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Restarting the economy after lockdownPriority 1


From UPSC perspective, the following things are important :

Prelims level : Not Much

Mains level : Read the attached story

  (This newscard is the excerpt from an article published in the TOI, authored by former RBI governor Raghuram Rajan. It discusses a series of reformative measures to boost our economy once the lockdown restrictions are eased.)


  • Economically speaking, India is faced today with perhaps its greatest emergency since Independence.
  • The global financial crisis in 2008-09 was a massive demand shock but our financial system was largely sound, and our government finances were healthy.
  • None of this is true today as we fight the coronavirus pandemic.
  • With the right resolve and priorities, and drawing on India’s many sources of strength, it can beat this virus back and even set the stage for a much more hopeful tomorrow.

To begin with: 21 day Lockdown

  • The immediate priority, of course, is to suppress the spread of the pandemic through widespread testing, rigorous quarantines, and social distancing.
  • The 21-day lockdown is a first step, which buys India time to improve its preparedness.
  • The government is drawing on our courageous medical personnel and looking to all possible resources – public, private, defence, retired – for the fight, but it has to ramp up the pace manifold.
  • It will have to test significantly more to reduce the fog of uncertainty on where the hotspots are, and it will have to keep some personnel and resources mobile so that they can be rushed to areas where shortages are acute.

Restarting with caution

  • The 21 day lockdown is about a week ahead to get lifted. It is hard to lockdown the country entirely for much longer periods, so we should also be thinking of how we can restart certain activities.
  • Restarting requires better data on infection levels, as well as measures to protect those returning to work.
  • Healthy youth, lodged with appropriate distancing in hostels at the workplace, maybe ideal workers for restarting.

Pacing up manufacturing

  • Since manufacturers need to activate their entire supply chain to produce, they should be encouraged to plan on how the entire chain will reopen.
  • The administrative structure to approve these plans and facilitate movement for those approved should be effective and quick – it needs to be thought through now.

Most crucial: Ensuring workforce sustenance

  • In the meantime, policymakers need to ensure that the poor and non-salaried lower middle class who are prevented from working for longer periods can survive.
  • Direct transfers to households may reach most but not all, as a number of commentators have pointed out.
  • Furthermore, the quantum of transfers seems inadequate to see a household over a month.
  • The state and Centre have to come together to figure out quickly some combination of public and private participation and DBTs that will allow needy households to see through the next few months.
  • We have already seen one consequence of not doing so – the movement of migrant labour. Another will be people defying the lockdown to get back to work if they cannot survive otherwise.

Gearing up for fiscal shocks

  • Our limited fiscal resources are certainly a worry. However, spending on the needy at this time is a high priority use of resources, the right thing to do as a humane nation.
  • This does not mean that we can ignore our budgetary constraints, especially given that our revenues will also be severely affected this year.
  • Unlike the US or Europe, which can spend 10% more of GDP without fear of a ratings downgrade, we already entered this crisis with a huge fiscal deficit, and will have to spend yet more.
  • A ratings downgrade coupled with a loss of investor confidence could lead to a plummeting exchange rate and a dramatic increase in long term rates in this environment, and substantial losses for our financial institutions.

Channelizing expenditures

  • So we have to prioritise, cutting back or delaying less important expenditures, while refocusing on immediate needs.
  • At the same time, to reassure investors, the government could express its commitment to return to fiscal rectitude.
  • The govt. must back up its intent by accepting the setting up of an independent fiscal council and setting a medium term debt target, as suggested by the NK Singh committee.

Boosting up Industries

1) MSMEs

  • Many MSMEs already weakened over the last few years, may not have the resources to survive.
  • We need to think of innovative ways in which bigger viable ones, especially those that have considerable human and physical capital embedded in them, can be helped.
  • SIDBI can make the terms of its credit guarantee of bank loans to SMEs even more favourable, but banks are unlikely to want to take on much more credit risk at this point.
  • The government could accept responsibility for the first loss in incremental bank loans made to an SME, up to the quantum of income taxes paid by the SME in the past year.

2) Large industries

  • Large firms can also be a way to channel funds to their smaller suppliers. They usually can raise money in bond markets and pass it on.
  • Banks, insurance companies, and bond mutual funds should be encouraged to buy new investment-grade bond issuances, and their way eased by the RBI.
  • The government should also require each of its agencies and PSUs, including at the state level, to pay their bills immediately, so that private firms get valuable liquidity.

Looping in everyone’s participation

  • The government should call on people with proven expertise and capabilities, of whom there are so many in India, to help it manage its response.
  • It may even want to reach across the political aisle to draw in members of the opposition who have had experience in previous times of great stress like the global financial crisis.
  • If, however, the government insists on driving everything from the PMO, with the same overworked people, it will do too little, too late.


  • Globally, it is said that India reforms only in crisis.
  • Hopefully, this otherwise unmitigated tragedy will help us see how weakened we have become as a society, and will focus our politics on the critical economic and healthcare reforms we sorely need.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Comparing current crisis with Great Depression, 1929Priority 1


From UPSC perspective, the following things are important :

Prelims level : Great Economic Depression, Slowdown vs. Depression

Mains level : Impact of the depression on colonial India


With the novel coronavirus pandemic severely affecting the global economy, some experts have begun comparing the current crisis with the Great Depression — the devastating economic decline of the 1930s that went on to shape countless world events.

Looming depression ahead

  • Experts have warned that unemployment levels in some countries could reach those from the 1930s era, when the unemployment rate was as high as around 25 per cent in the United States.
  • Currently, unemployment levels in the US are already estimated to be at 13 per cent, highest since the Great Depression.

What was the Great Depression?

  • The Great Depression was a major economic crisis that began in the United States in 1929, and went to have a worldwide impact until 1939.
  • It began on October 24, 1929, a day that is referred to as “Black Thursday”, when a monumental crash occurred at the New York Stock Exchange as stock prices fell by 25 per cent.
  • Though the crash was triggered by minor events, the extent of the decline was due to more deep-rooted factors such as a fall in aggregate demand, misplaced monetary policies, and an unintended rise in inventory levels.
  • In the United States, prices and real output fell dramatically. Industrial production fell by 47 per cent, the wholesale price index by 33 per cent, and real GDP by 30 per cent.

Worldwide impact

  • The havoc caused in the US spread to other countries mainly due to the gold standard, which linked most of the world’s currencies by fixed exchange rates.
  • In almost every country of the world, there were massive job losses, deflation, and a drastic contraction in output.
  • Unemployment in the US increased from 3.2 per cent to 24.9 per cent between 1929 and 1933. In the UK, it rose from 7.2 per cent to 15.4 per cent between 1929 and 1932.

Latent outcomes

  • The Depression caused extreme human suffering, and many political upheavals took place around the world.
  • In Europe, economic stagnation that the Depression caused is believed to be the principal reason behind the rise of fascism, and consequently the Second World War.
  • It had a profound impact on institutions and policymaking globally and led to the gold standard being abandoned.

How did Great Depression impact India?

  • The Depression had an important impact on India’s freedom struggle.
  • Due to the global crisis, there was a drastic fall in agricultural prices, the mainstay of India’s economy, and a severe credit contraction occurred as colonial policymakers refused to devalue the rupee.
  • The effects of the Depression became visible around the harvest season in 1930, soon after Mahatma Gandhi had launched the Civil Disobedience movement in April the same year.

1) Rural India mainstreamed into freedom struggle

  • The fallout made substantial sections of the peasantry rise in protest and this protest was articulated by members of the National Congress.
  • There were “No Rent” campaigns in many parts of the country, and radical Kisan Sabhas were started in Bihar and eastern UP.
  • Agrarian unrest provided a groundswell of support to the Congress, whose reach was yet to extend into rural India.

2) INC gained momentum

  • The endorsement by farming classes is believed to be among the reasons that enabled the party to achieve its landslide victory in the 1936-37 provincial elections held under the Government of India Act, 1935.
  • This is marked as a significant event in the history of INC as it flourished the party’s political might for years to come.


Slowdown vs recession vs depression

  •  Slowdown simply means that the pace of the GDP growth has decreased.  During slowdown, the GDP growth is still positive but the rate of growth has decreased.
  •  Recession refers to a phase of the downturn in the economic cycle when there is a fall in the country’s GDP for two quarters.   It is a period of decline in total output, income, employment and trade, usually lasting six months to a year.
  • Depression is a prolonged period of economic recession marked by a significant decline in income and employment.   It is a negative GDP growth of 10% of more, for more than 3 years.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

The sudden return of quantity planning in the wake of covid-19op-ed snap


From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 3-Applying ways suggested by Keynes in times pandemic. of war to deal with the covid-19


We could take a leaf out of a booklet by Keynes in our effort to tackle some of the challenges posed by the covid-19 pandemic.

The Crisis-Keynesian Mode response mode to pandemic

  • What is the war economy? One of the defining features of a war economy is that economic thinking is focused on quantities rather than prices.
  • Much of the ongoing global response to the covid-19 pandemic is still in crisis-Keynesian mode.
  • What is a crisis-Keynesian response: The nation-state has become the income supporter, financier and consumer of last resort.
  • However, there are also clear signs of war economics as well.
  • Signs of war economics: The decision by US President Donald Trump to use America’s Defense Production Act to force General Motors to make ventilators is one resonant example.
  • Just consider some of the key questions that are being asked right now.
  • How many ventilators are available? Are there ample food stocks? Can more hospital beds be made available? How many masks be produced in the next few weeks? Can the production of testing kits be ramped up? It’s all about quantities, quantities, quantities.

Historical background and impact of a shift in economic strategies

  • Impact persists in subsequent decades: Such big shifts in economic strategies are usually not reversed overnight. Decisions taken in response to a particular emergency tend to remain with us in subsequent decades.
  • World War II example: What happened in India during World War II is instructive. Many of the controls that were introduced during that global conflagration formed the basis of the later interventionist state that sought to control who produces how much. Here are a few examples.

1. Quantitative import controls

  • One of the first moves by the colonial state was to impose quantitative import controls in May 1940.
  • There were two reasons why this was done—to conserve foreign exchange as well as ensure that shipping capacity was used to bring in only what was essential to the war economy.

2. Food rationing

  • Food rationing was also introduced during the war years.
  • Over 700 towns were covered by some rationing scheme or the other by the end of the War.
  • The government also brought in measures to buy surplus grain from farmers at administered prices.
  • Various forms of rent control were also instituted. Most of these controls continued after India gained independence.

3. Balance of payment crisis in 1957

  • India was hit by a balance of payments crisis in 1957.
  • The massive investment thrust in the Second Five Year Plan had severely strained the country’s foreign exchange reserves.
  • The Indian government, once again as a temporary measure, imposed stringent controls on imports.
  • Many of these were quantitative in nature. They survived well into the 1980s.
  • In fact, the entire trade policy approach since the 1957 crisis was to minimize imports in a bid to preserve foreign exchange.

Will the government opt for automatic monetisation of the deficit?

  • Money creation by the RBI to fund deficit: There is now a growing consensus that the Indian government will have to fund part of its growing fiscal burden through money creation by the Reserve Bank of India.
  • What about inflationary consequences? The inflationary consequences will be muted—for now—because the velocity of narrow money is most likely set to fall on account of weak demand conditions under a lockdown.
  • Precedence: The automatic monetization of Indian government deficits was part of the policy playbook after the 1950s till it was thankfully discontinued in 1997.
  • The main instrument for that was ad hoc treasury bills.
  • These were introduced in 1954 as a temporary measure to replenish the cash balances the government maintains with the central bank.
  • What was ad hoc treasury bills? Ad hoc treasury bills were not introduced through any formal law but as an arrangement between mid-level bureaucrats in New Delhi and Mumbai (i.e. RBI).
  • What began as a temporary measure to smoothen government cash holdings had become a near-permanent feature of Indian macroeconomic policy by the 1970s.

The uncertain future

  • Longer the war more profound will be the changes: The longer the global battle against the pandemic lasts, the more profound will be the changes across the economic landscape.
  • In an insightful article in Bloomberg, Andy Mukherjee uses the lessons of history to look into the uncertain future.
  • Among the possibilities he mentions are the contrasting ones of an economy run by robots and algorithms but with little labour, or an economy in which labour has clawed back the power it lost in the second age of globalization.

Managing the resources in the time of war

  • Managing the resources: In 1940, John Maynard Keynes wrote a little booklet How To Pay For The War, Keynes essentially argued that the main challenge was not how to finance the war effort, but how to manage real resources to produce the arms that the UK needed to defend herself.
  • Suppression of consumption: He then argued that war production would necessarily involve suppression of consumption, either through higher taxes or some scheme of deferment.


The war against the covid-19 pandemic is very different from the military war that Keynes was thinking about. Yet, his booklet offers useful lessons on how to think about some of our current challenges—and also about what we can expect once the situation returns to normal.

Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

What is Keqiang Index’?Prelims Only


From UPSC perspective, the following things are important :

Prelims level : Keqiang Index

Mains level : NA

China’s GDP numbers which are preferably represented by Keqiang Index has been recently seen in news amid coronavirus outbreak.

Keqiang Index

  • Li Keqiang index or Keqiang index is an economic measurement index created by The Economist to measure China’s economy using three indicators, as reportedly preferred by Li Keqiang.
  • It uses three other indicators:
  1. the railway cargo volume,
  2. electricity consumption and
  3. loans disbursed by banks
  • Li Keqiang currently the Premier of the People’s Republic of China, suggest the index as better economic indicator than official numbers of GDP.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

No green shoots of a revival in sight as yetop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 3- Significance of quarterly GDP estimates and revision.


As the third-quarter GDP was marginally higher than the second-quarter figure of 4.5% many concluded that the economic slowdown witnessed during the last six quarters has “bottomed out”. Has it?

What closer examination of data reveal?

  • Estimates revised upwards: A closer reading reveals that the latest data release has revised the estimates of the first two quarters of the current year (2019-2020) upwards to 5.6% and 5.1%, from the earlier figures of 5% and 4.5%, respectively.
  • What the revision mean? The upward revisions have, perhaps unwittingly, changed the interpretation of the current year’s Q3 estimate: the slowdown has continued, not bottomed out; hence, there is no economic revival in sight as of now.

Competing views of the performance

  • The question therefore is why did the current year’s Q1 and Q2 GDP estimates get revised upwards?
    • The answer is this was simply because the corresponding figures for the previous year (2018-2019) got revised downwards.
  • The question over the revision process: Many viewed the revision of last year’s estimates as evidence of lack of credibility of the NSO’s revision process.
  • Questions over the veracity of data: Such doubts are well taken, given the long-standing debate and unresolved disputes on the veracity of GDP figures put out since 2015, when the statistical office released the new series of National Accounts with 2011-2012 as base year.

Why the GDP estimates undergo revisions?

  • Lags in data: As there are lags and unanticipated delays in obtaining the primary data, the GDP estimates undergo several revisions everywhere (except in China).
    • GDP is a statistical construct, prepared using many bits of quantitative information on an economy’s production, consumption and incomes.
  • How frequently is data revised? GDP estimates are revised five times in India over nearly three years.
    • The initial two rounds, the advanced estimates, are prepared mainly using high-frequency proxy indicators followed by three rounds based on data obtained from various sectors.

Quarterly GDP estimates and issues with it

  • Since 1999, quarterly GDP estimates are being prepared, as per the International Monetary Fund (IMF)’s data dissemination standards.
  • Subpar quality: Their quality is subpar as the primary data needed quarterly are mostly lacking.
    • Why quality is subpar? Nearly one-half of India’s GDP originates in the unorganised sector (including agriculture), whose output is not easily amenable to direct estimation every quarter, given the informal nature of production and employment.
    • Hence, the estimates are obtained as ratios, proportions and projections of the annual GDP estimates.
  • Quarterly estimates are extrapolations: In general terms, quarterly estimates of GDP are extrapolations of annual series of GDP. The estimates of GVA by industry are compiled by extrapolating value of output or value-added with relevant indicators.

Way forward

  • Little ground to question the present revisions: There were considerable variations at the sectoral estimates after the revision, which probably contained more noise than information. For now, there is little ground to question the revised estimates based on the publicly available information.
  • Slowdown not bottomed out: If we accept the latest data, it is clear, though in an alarming way, that there has been an undeniable decline in the GDP growth rate over seven consecutive quarters, from 7.1% in Q1 of 2018-2019 to 4.7% in Q3 of 2019-2020.
    • Considering that physical indicators of production, such as the official index of infrastructure output, or monthly automotive sales, continue to show an unambiguous deceleration, the economic slowdown has apparently not bottomed-out.
    • More seriously, the quarterly GDP deceleration comes over and above the annual GDP growth slowdown for four years now: from 8.3% in 2016-17 to 5% in 2019-20 (as per the second advance estimate).
  • Limited primary information: India’s quarterly GDP estimates have limited primary information in them. Their revisions are largely extrapolations and projections of the annual figures. Hence, one should be cautious in reading too much into the specific numbers.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Don’t blame it on NSOop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 3- Revision and estimates of GDP data.


The latest GDP data witnessed significant revisions that have gone largely unnoticed.

The GDP data revision and its criticism

  • Revisions an act of due diligence: In the last few years there has been a lot of noise regarding the data revisions.
    • The need for closer examination: While part of revision requires closer examination, we must be fair to our statistical system as such revisions are, in large part, due diligence and happen globally.
  • Schedule of NSO estimates
    • First estimate: The NSO releases the first estimates of any fiscal year in January.
    • Revises the January’s first estimates in February.
    • And then again in May.
    • Simultaneous revision in February: Simultaneously, it revises the previous year estimates in February, alongside the February data release.
  • Suspicion of statistically protecting the 5% growth: The primary criticism, with the current year’s fiscal data, is that the revisions in February for 2019-20 and the 4th revision in 2018-19 are almost identical, implying that the sanctity of 5 per cent growth was statistically protected.

Examining the criticism purely on the data

  • Precedence of 1st and 2nd quarter revision: There is precedence to the first and second quarter revisions for the current financial year that happen in February.
    • For example, while in the current fiscal, the cumulative downward revision was close to Rs 30,000 crore.
    • In FY19, there was even a greater upward revision of roughly Rs 86,000 crore in February.
  • Is there precedence of such large first-time revisions? Yes, there has been since 2014-15. In 2018-19, the first-time data was revised by a sharp Rs 1.43 lakh crore, while in 2017-18, it was revised by an even larger Rs 1.69 lakh crore.
  • Revision in the same direction: The simultaneous revisions are mostly in the same direction, though different in magnitude, and hence it is unfair to say that the 2018-19 data was revised downwards to protect the 2019-20 numbers.

What was the problem?

  • Uncertainty: The problem has been that the global and domestic uncertainties in 2017-18 and 2018-19 have been so swift that it has been virtually impossible to predict the outcome initially.
    • While in 2017-18, the final estimates were progressively higher.
    • In 2018-19, while the interim estimates were higher, they were drastically scaled-down later as the impact of the NBFC crisis began to unfold.
  • The US example: The US Fed had also missed the possibility of the US economy bouncing back in 2018 on the back of tax cuts when in 2015 it had projected the economy to expand by only 2 per cent, only to change it to 3 per cent in 2018 (almost at par with scale of revisions in India).

Why such unconditional biases arise?

  • Asymmetric loss function: It is common for such unconditional bias to arise due to the fact that the statistical reporting agency produces releases according to an asymmetric loss function.
    • For example, there may be a preference for an optimistic/pessimistic release in the first stage, followed by a more pessimistic/optimistic one in the later stage.
  • Cost factor: Intuitively, one might argue that the cost of a downward readjustment of the preliminary data is higher than the cost of an upward adjustment.
  • This asymmetric loss function is not so relevant at the reporting stage but at the forecasting stage.
  • Interpreting the data revision: A statistical reporting agency like the NSO simply does not have all the data at hand and has to forecast the values of the yet to be collecting data.
    • It is at that moment that the asymmetric loss function comes into play.
    • So, we must be careful about interpreting data revisions by the NSO by attributing ulterior motives as we more often tend to do.

India lagging in the use of data analysis

  • Unlike countries across the world, India is still significantly lagging in its use of data analysis.
    • Methodologies based on thin surveys: Some of the current methodologies of data collection is based mostly on thin surveys.
    • Not supported by the data in public domain: It is also not supported by data available in the public domain that are more comprehensive, less biased and real-time in nature, based on digital footprints.
    • The end result is that we end up publishing survey results that are misleading.

Way forward

  • Development of big data and AI bases ecosystem: We must develop an ecosystem that is high quality, timely and accessible.
    • Big data and artificial intelligence are key elements in such a process.
    • Big data helps acquire real-time information at a granular level and makes data more accessible, scalable and fine-tuned.
  • Use of payment data: The use of payments data can also help track economic activity, as is being done in Italy.
    • Different aggregates of the payment system in Italy, jointly with other indicators, are usually adopted in GDP forecasting and can provide additional information content.


To be fair to both the RBI and the NSO, the volatility of oil prices and structural changes in the economy make the forecasting of inflation and GDP a difficult job indeed. However, we should supplement our existing measurement practices with “big data” to make our statistical system more comprehensive and robust.

Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Monetary policy can’t combat the COVID-19 impactop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 3- Is expansionary monetary policy enough to deal with the impact of COVID-19?


Central banks the world over are devising the strategies to deal with the impact of COVID-19 on their economies.

How the Central banks are responding?

  • US Fed’s response: The huge 50 basis points cut in rates by the U.S. Federal Reserve to lift economic sentiment hit by COVID-19 has disrupted central banking worldwide.
  • Pressure on other Central banks to follow suits: Even as analysts debate whether a monetary policy response is a right strategy, central banks across the world are feeling the pressure to follow suit to the largest rate cut by the Fed since 2008.
  • How banks are responding? Central banks of Australia and Malaysia have cut rates already while others such as the Bank of Japan, Bank of England and the European Central Bank are contemplating joining the caravan.

How the RBI is responding?

  • First line of economic defence: With monetary policy turning out to be thede facto first line of economic defence against the ill-effects of the virus, the focus in India has turned to the Reserve Bank of India’s response.
  • Hope of rate cut: Yields on 10-year government securities fell by as much as 0.12% in the hope of a rate cut by the RBI and they stayed soft.
  • But what are the central bank’s options?
    • No unilateral rate adjustment: Unlike other countries, the legal framework in India after the setting up of the Monetary Policy Committee (MPC) is such that the RBI cannot unilaterally adjust rates.
    • The MPC will have to meet and deliberate on the situation before the call to cut rates is taken and such a call will have to be based on an assessment of inflation in the economy.

Is a rate cut the right response?

  • Impact of the virus on the supply side: The first-order impact on the global economy of the spreading virus is a disruption to trade and to global supply chains.
    • With China being the factory of the world, the clampdown in that country has already disrupted supplies of products ranging from cell phone components to bulk drugs and auto components.
    • Factory lines across the world could freeze as supply chains get disrupted.
  • Limits of Monetary policy to deal with the supply-side problem: Monetary policy is excellent to address demand shocks but is a blunt tool when it comes to addressing supply-side issues.
    • Where to spend? People may be encouraged to spend more due to a rate cut but what will they spend on if products go scarce, travel convulses and public spaces such as movie theatres and malls become no-go areas?
  • The rate cut will boost the sentiments only: A rate cut can, at best, help to boost sentiment but that again will be transient as the market’s reaction after the Fed rate cut proves.
    • Expansionary monetary policy cannot improve the situation: The Swedish central bank’s deputy governor Anna Breman has rightly questioned the logic of a rate cut as a response to the coronavirus impact pointing out that an expansionary monetary policy cannot improve the situation.
  • How the RBI might respond? The sentiment being what it is, the RBI may find itself under increasing pressure to act. Given the MPC constraint, it may well choose to do what it did in the February monetary policy– unleash other weapons in its armoury to give the same effect as a rate cut.
    • Thus, we may well see the central bank announcing another tranche of long-term repo operation, akin to the ₹1 lakh crore that it announced in February.
    • That will mean that banks will gain access to three-year funds at the repo rate of 5.15%, much lower than the market rate.
    • And then, there’s Operation Twist which the RBI employed to good effect in December, softening rates at the long end of the yield curve.

Would any of these measures yield any response?

  • Doubtful results: It’s doubtful if any of these measures can address the hit to economic growth. The virus has undoubtedly surfaced at a very wrong time for the Indian economy which is showing hesitant signs of a return to growth.
  • Which sectors will be impacted the most? The impact will be felt on more than one front. Industries such as pharmaceuticals, electronics and automobiles could be headed for trouble given their high dependence on Chinese inputs.
  • Government’s response: While the government is said to be formulating a response, including the possibility of airlifting supplies, the practicality of this solution needs to be watched as also its impact on costs for the industries concerned.

Impact on exports and offsetting factor of oil import

  • The biggest problem: The bigger problem could be from a fall in exports, which accounts for 20% of the GDP.
  • Which exporters would feel the heat? If the developed world tips into recession due to the virus, exporters of products ranging from petroleum and textiles to leather and gems and jewellery will feel the heat.
  • Oil offset due to fall in oil prices: The offsetting factor, of course, will be a lower oil import bill due to the sharp fall in oil prices. This may also have a benevolent effect on inflation.
  • But there will be other headaches for the central bank if the developed world embarks on monetary expansion. The RBI will be faced with the challenge of staunching inflows of hot money coming in search of the higher returns available in India.


  • Hot money concern for RBI: There will be other headaches for the central bank if the developed world embarks on monetary expansion. The RBI will be faced with the challenge of staunching inflows of hot money coming in search of the higher returns available in India.
  • Opportunity in the crisis: As with every crisis, there’s also an opportunity here. Economic growth is bound to suffer in the short-term but there could be long-term spin-offs if domestic industry and government get their acts right.
    • Supply chains can be localised through fresh investments and India can bid to be an alternative to China in the global value chain.
  • India can be an option to China for global supply chain: The COVID-19 crisis has only underlined in red the lesson that global corporations learnt when trade war broke out between the U.S. and China- the global supply chain needs alternative options to China. India is eminently qualified to assume that role. If only our policymakers and industrialists rise up to the challenge.



Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Way out lies withinop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 3-Focus on demand side of the Indian economy instead of focusing all attention on supply-constraints.


Domestic demand must play a greater role in India’s growth story.

Recovery in the Indian economy

  • Sub-5 per cent growth rate: India’s fourth-quarter GDP growth (the calendar year 2019) printed another sub-5 per cent growth rate.
  • Favourable base effect: It would have been lower had it not been for the large downward revisions to previous years’ GDP that statistically boosted the last quarter’s growth rate because of favourable base effects.
  • The decline in GDP stabilised: Policymakers and the market heaved a sigh of relief that the relentless decline over the last three years at least seems to have stabilised around 4-5 per cent.
  • Why some countries prefer sequential growth rate: Because year-over growth rates are so strongly affected by what happened a year ago, most economies (including China) instead publish and conduct policy discussions based on sequential quarterly growth.
    • Better sense of momentum: Sequential growth rates provide a much better sense of the momentum and turning points in activity, which are critical to deciding whether, how much, and when the economy needs policy support.
  • The magnitude of recovery: The growth momentum rose, albeit modestly, from 3.8 per cent in the third quarter of 2019 to 4.1 per cent.
    • Non-farm and non-governmental GDP recovery: More importantly, non-farm and non-government GDP (the closest approximation to non-farm private-sector GDP) bounced much more sharply from 1.6 per cent (and no this is not a misprint) to 4.4 per cent in the fourth quarter.

What is the dominant narrative of the slide in growth?

  • The deceleration in sequential terms: With the revised data, we now know that annual growth over the last four years has slowed from 8.3 per cent to 7 per cent to 6.1 per cent to 4-5 per cent.
    • The decline in non-farm private GDP: In sequential terms, the deceleration was far more dramatic, especially in non-farm private GDP, which after hitting a run rate of 13 per cent in the first quarter of 2016 fell to 1.6 per cent by the third quarter of 2019.
    • The dominant narrative of the cause of slide: The dominant narrative is that India’s woes are just an unfortunate and unintended consequence of demonetisation, the shift to a national GST, and the credit squeeze caused by the bad debt in banks and non-banks.
    • The dominant narrative on recovery: With a bit more fiscal support, some monetary easing, and extended regulatory forbearance to help banks work out their bad debts, these headwinds will fade and India will likely be back to its winning ways.

Why real cause of the slowdown lays somewhere else?

Following factors suggest that answer lies somewhere else.

  • Disruptive but not the drivers of the slowdown: While it is undeniable that facts stated in the dominant narrative had been disruptive, they couldn’t be the drivers of the decline.
    • Slide in growth started even before demonetisation: India’s growth had been sliding since the second quarter of 2016; nearly 6 months before demonetisation and a year before the GST was introduced.
    • By the third quarter of 2016, non-farm private sector growth had already slid to 3.5 per cent.
    • Bad debt problem predates slowdown: Although bad debt hit the headlines in 2016, the overleverage had already begun to tighten bank lending since 2014.
  • Fall in corporate investment- inexplicable cause: More inexplicable is the argument that falling corporate investment is the main culprit for the slowdown.
    • It is true that corporate investment is no longer running at the heady 17 per cent of GDP of the pre-global financial crisis (GFC) days but at a much more sombre 11-12 per cent.
    • However, this outsized adjustment had already taken place by 2010 and since then, corporate investment has flatlined at current levels.

The answer lies in globalisation

It is obvious once one eschews India’s exceptionalism and accepts that it is just another emerging market economy that grew on the coattails of globalisation with the minimal reforms. Globalisation has largely determined India’s fate.

  • Growth in corporate investment and exports: Contrary to a widely held misperception, India is and has been for a long time far more open to the global economy than believed.
    • Rise in corporate investment from 5 to 17%: The limited liberalisation of 1991-92, coupled with the corporate restructuring in the late 1990s, spurred corporate investment to rise from 5-6 per cent of GDP in the early 2000s to 17 per cent of GDP by 2008.
    • Increase in exports: Almost all of this expansion in investment was geared to produce for exports, which grew at an astonishing pace of 18 per cent per year-over-year in this period as global trade expanded at breakneck speed with the entry of China into the WTO in 2001.
    • 12% of GDP to 26% of GDP: Exports as a share of GDP more than doubled from 12 per cent in the early 2000s to over 26 per cent by 2008.
    • Slow growth in private consumption: In contrast, private domestic consumption, which is considered to be India’s great strength, grew only at 6 per cent annually, less than the growth rate of the economy, such that its share in GDP fell from 63 per cent to 56 per cent.
    • The engine of the Indian economy- Export: Since 2012, global trade has floundered and with that so has India’s economy.
    • Indeed, the entire rise and fall of investment, including the quarter-to-quarter twists and turns in it, can be almost fully explained by changes in exports.
    • The Indian economy has long been flying on one engine – exports — and that is now spluttering.

What are the prospects of taking the economy back to its high growth path

  • Unlikely: So will the nascent recovery strengthen and take the economy back to its high growth path? Unlikely on current policies.
  • COVID-19 factor: In the near term, as in now widely feared, the COVID-19 outbreak could turn into a pandemic, sharply reducing global demand and trade.
    • With that, even expectations of a modest 2019-20 recovery to 5.25 per cent growth are under threat.
  • Backlash against globalisation: Over the longer term, it is unlikely that global trade will return to its pre-Global financial crisis growth rates not only because supply chains have stopped expanding in the absence of any material technology breakthrough, but there is also a growing political backlash against globalisation in the developed market that has led to increased trade barriers.

Way forward

  • Search for new sources of growth: India too, like other emerging market economies, needs to face up to the reality that it can no longer depend on global trade to be the only growth driver. Instead, it needs to search and find new sources of growth and that starts with recognising and accepting reality.
  • Let domestic demand play a greater role in the economy: Policymakers need to stop thinking about India as a perennially supply-constrained economy focusing almost all policies and reforms to easing these constraints. Instead, it is time to let domestic demand play a greater role in India’s growth story.
  • Policy changes: The above factors mean that India Inc. needs to shift from producing what foreigners want to produce what residents can afford, it also means that policymakers have to reverse policies that have so far forced households to keep increasing savings (for retirement income, children’s education, healthcare, and housing) through a web of financial repression, regulatory distortions, and public spending choices.
    • It means redesigning India’s infrastructure to look more inward and less outward.
    • Reduce out of pocket expenses: Increasing public provisioning of healthcare and education, reforming insurance regulations to reduce out-of-pocket expenses and eliminating financial repression to raise returns on retirement savings.
    • Merely tinkering with macroeconomic policies will not be enough.



Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

The growth challengeop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 3- Prospects of recovery of Indian economy and indications from demand and supply side.


The focus in the near future should to increase investments and facilitate credit for funding these productive assets so that India’s potential output growth can steadily rise.

Growth prospects of India

  • The NSO forecast at 5%: The latest data from the National Statistical Office (NSO) retained India’s economic growth forecast at 5 per cent for the current financial year.
    • Growth has dropped from 6.1 per cent in the previous year.
  • Fall in nominal GDP: More strikingly, nominal GDP growth has decelerated from an average of 11 per cent during 2016-17 to 2018-19 to 7.5 per cent this year.
    • Lower inflation added to the volume slowdown.
    • The value of India’s GDP for FY20 is estimated at around $2.9 trillion.

Input and output side growth prospects

  • GDP is estimated from both output and demand lenses, using specific economic indicators as proxies for activity in specific sectors.
  • Output side: From the output side, sector-wise estimates were as following-
    • Agriculture sector growth was revised up to 3.7 per cent (up from the 2.8 per cent previously).
    • Agricultural production is expected to improve based on the third advance estimates of the rabi season crops, as well as higher horticulture and allied sector output (livestock, forestry and fishing), which now is significantly larger than conventional food crops.
    • Industrial activity was lowered to 1.5 per cent (from 2.3 per cent earlier).
    • The key concern regarding the continuing slowdown is the increasing weakness in the industrial sector (particularly of manufacturing, whose growth has progressively fallen from 13.1 per cent in FY16 to 5.7 per cent in FY19, and plummeting to 0.9 per cent in FY20).
    • Services output remained largely unchanged at 6.5 per cent.
  • Demand-side: From a demand perspective, the obverse side to the manufacturing slowdown is the even sharper drop in fixed asset investment growth — down sharply from an average 8.5 per cent during FY17 and FY19 to -0.6 per cent in FY20.
    • The causes for this contraction needs to be understood in detail, and we will return to this.

Private consumption- a significant driver of growth

  • Private consumption at 60% of GDP: The other significant driver of growth in India has been private consumption. For perspective, the share of private consumption had averaged 59-60 per cent during FY16-FY20.
  • Government consumption 10% of GDP: Reflecting the higher spending over the last couple of years, the share of government consumption in GDP has risen from an average of 10.5 per cent of GDP over FY12-17 to almost 12 per cent in FY20, resulting in the share of total consumption above 70 per cent.

Drop in the share of nominal investment

  • Drop from 39 % to 30 % of GDP: The really remarkable trend, though, as noted above, is the share of nominal investment in GDP progressively dropping from 39 per cent in FY12 to 30 per cent in FY20.
  • Is it a good sign? Part of this is actually good, reflecting higher Capex efficiency.
    • Slowing household consumption: One narrative underlying the contraction in fresh Capex in FY20 was slowing household consumption growth, which, in nominal terms, fell from an average 11.6 per cent during FY16-19 to an estimated 9.1 per cent in FY20.
    • Disproportionate contribution to lower growth: Though the deceleration prima facie does not seem significant enough to result in a broader economic slowdown of the current magnitude, the high share of household consumption has contributed disproportionately to lower growth.
    • Fall in capacity utilisation: A direct fallout of this is that seasonally adjusted capacity utilisation (based on RBI surveys) had shrunk from 73.4 per cent in the first quarter of FY20 to 70.3 per cent in the second quarter, and this is unlikely to have improved materially in the second half of the year.
    • This is one of the reasons for the low levels of fresh investment.

Reduced flow of credit to the commercial sector

  • Impediment to growth revival: The other cause of the low Capex, more from the supply side, is a much-reduced flow of credit to the commercial sector, and this remains the proximate impediment for growth revival, with signs of risk aversion in lending still strong despite the recent measures by RBI to incentivise credit to productive sectors.
    • Funds from selected sources, over April-January FY20, was only about Rs 9 lakh crore as against Rs 15 lakh crore in the corresponding 10 months of FY19.
  • Bank credit lowest in three months: Growth in bank credit (which is still the largest source of financing) till mid-February 2020 was down to 6.3 per cent — the lowest in three years.
    • Even this is almost wholly driven by retail credit; incremental credit to industry and services over this period was negative.

Investor confidence and coronavirus factor

  • A bright feature of the economic environment: One bright feature in this economic environment is strong foreign investor confidence in India, reflected in both FPI equity and FDI flows.
    • Many borrowers have used offshore sources to refinance or pay down domestic bank loans and debt.
    • A global risk-off environment might restrict even this channel in the near future.
  • Robust corporate bond issuances: Domestic corporate bond issuances have also remained robust, although the dominant set of borrowers still remain public sector agencies and financial institutions.
  • Coronavirus factor likely to moderate the gains: Monthly economic indicators suggest that the growth deceleration has likely bottomed out in the third quarter.
    • The bet has been on reducing inventories and the consequent production ramp-up to replenish stocks. However, the evidence on this is mixed.
    • The coronavirus effects, both concurrent and lagged, will also moderate some of the emerging positive effects of counter-cyclical policy measures of the past six months.
    • If the outbreak does not abate over the next month or so, the complex supply chains of intermediates sourced from China will run dry and add to the already weak system demand.
  • Growth prospects in the next few weeks: Surveys indicate that both business and consumer confidence, which while improving, remain muted. A growth revival, hence, is likely to be only very modest over the next few quarters.


A $5 trillion economy by 2025 is still a worthwhile target and aspirational; coordinated strategies, policies, execution and institutional mechanisms will be needed to move up to a sustained 8 per cent plus growth consistent with achieving the target. The focus in the near future should to increase investments and facilitate credit for funding these productive assets so that India’s potential output growth can steadily rise.


Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

The $5 trillion arithmeticop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 3- The ambitious target of $5 trillion economy.


The Indian government has set itself a big target, namely, that the Indian economy will have an aggregate income or gross domestic product (GDP) of $5 trillion by 2024-25.

Lack of clarity

  • There is little effort to take it beyond a slogan.
  • When it comes to targets and aims pertaining to the economy, it is important to have-
    • The officials and advisers go beyond the headline.
    • To lay out the details and the road-map for the target.
  • Matter for investors: For international observers and particularly investors, not to see these details creates doubts about professionalism.

What growth rate is required to reach that target?

  • How long will it take to achieve the target at the present growth rate?
    • In 2018-19, India’s GDP was $2.75 trillion.
    • India’s latest official growth rate happens to be 5 per cent.
    • Target will be reached in 2032-33: Continue in the same fashion to compute the size of the GDP and it becomes clear that the target of $5 trillion will be reached not in 2024-25, but in 2032-33.
  • What is the required rate? Set the target as $5 trillion dollars for 2024-25 the required rate turns out to be 10.48 per cent or, approximately, 10.5 per cent.

Why 10.5 rate is an ambitious target?

  • The only example of any nation growing for six consecutive years at an average annual rate of over 10.5 per cent was China from 2003 to 2009.
  • Can India achieve this rate?
    • From 1947 till now, India’s economy grew at over 10 per cent only twice — in 1988-89 and 2007-8.
    • Of these, the first may be dismissed because the previous year the economy had grown very slowly, by 3.5 per cent.
  • What we can learn from the past growth rate?
    • The only example to learn from: The only example from which we can learn is the remarkable growth in 2007-8, made all the more remarkable by the fact that India had been growing well for several years, starting from 2003.
    • And from 2005, India was actually growing over 9 per cent.
    • What factors played the role in high growth?
    • This was a period of professional fiscal policy and steady effort at building infrastructure.
    • India’s economy was making big news in the international media and investment poured in.
    • India’s investment-to-GDP rate climbed to an all-time record of 39 per cent.
  • Current investment-to-GDP ratio: Our investment-to-GDP ratio has crashed to 30 per cent and this takes time to re-build.
    • If we can get back to a growth rate of 7 per cent we will be lucky.

Can inflation make the target achievable?

  • Combination of real growth and inflation can make it possible: Virtually all serious commentators agree that in purely real terms, the $5-trillion target is unreachable.
    • But maybe we can make it by a combination of real growth and inflation.
    • How the combination will work? One way India can get to the target is if alongside say 7 per cent growth, India has inflation of say 3.5 per cent.
    • Then India’s nominal GDP growth rate will be 10.5 per cent.
  • Why the inflation argument is flawed?
    • The five trillion target is in dollar terms.
    • Inflation will lead to depreciation: Typically, if India has higher inflation than the US, the rupee would depreciate vis-à-vis the dollar to account for that.
    • For the sake of pure arithmetic, assume US inflation is zero, India’s inflation is 10 per cent, and India’s real growth rate is 0.
    • In that case, in rupee terms, India’s economy will grow by 10 per cent. But how much will India’s economy grow in dollar terms?
    • The answer is zero.
    • Why is it so? This is because the rupee will typically depreciate by 10 per cent to match the inflation differential, and so the larger GDP of India in rupee terms, when converted to dollars will show no growth.
  • The other possibility of achieving the target?
    • What if the dollar loses value? But this should immediately make it clear that there is another way of getting to the target.
    • This can happen if the US dollar loses value.
    • We can then get to the target of $5 trillion because that will mean less in real terms.


There are two routes to achieve the target of $5 trillion: A huge policy initiative to boost real growth or the luck of dollar depreciation. The luck of dollar would mean nothing for us in the real term so the best course of action for the government is to seek the first option and try to achieve it.

Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Key Highlights of Economic Survey 2019-20DOMRPriority 1


From UPSC perspective, the following things are important :

Prelims level : Read the attached story

Mains level : Not Much


The Union Minister for Finance & Corporate Affairs, Smt. Nirmala Sitharaman presented the Economic Survey 2019-20 in the Parliament today. The Key Highlights of the Survey are as follows:

Wealth Creation: The Invisible Hand Supported by the Hand of Trust

[Covered in a separate newscard]

Survey posits that India’s aspiration to become a $5 trillion economy depends critically on:

  1. Strengthening the invisible hand of the market.
  2. Supporting it with the hand of trust.

Pro-business versus Pro-markets Strategy

  • Survey says that India’s aspiration of becoming a $5 trillion economy depends critically on:
  1. Promoting ‘pro-business’ policy that unleashes the power of competitive markets to generate wealth.
  2. Weaning away from ‘pro-crony’ policy that may favour specific private interests, especially powerful incumbents.
  • Pro-crony policies such as discretionary allocation of natural resources till 2011 led to rent-seeking by beneficiaries while competitive allocation of the same post 2014 ended such rent extraction.

Strengthening the invisible hand by promoting pro-business policies to:

  1. Provide equal opportunities for new entrants.
  2. Enable fair competition and ease doing business.
  3. Eliminate policies unnecessarily undermining markets through government intervention.
  4. Enable trade for job creation.
  5. Efficiently scale up the banking sector.
  • Introducing the idea of trust as a public good, which gets enhanced with greater use.
  • Survey suggests that policies must empower transparency and effective enforcement using data and technology.

Entrepreneurship at the Grassroots

  • Entrepreneurship as a strategy to fuel productivity growth and wealth creation.
  • India ranks third in number of new firms created, as per the World Bank.
  • New firm creation in India increased dramatically since 2014:
  1. 2 % cumulative annual growth rate of new firms in the formal sector during 2014-18, compared to 3.8 % during 2006-2014.
  2. About 1.24 lakh new firms created in 2018, an increase of about 80 % from about 70,000 in 2014.
  • Survey examines the content and drivers of entrepreneurial activity at the bottom of the administrative pyramid – over 500 districts in India.
  • New firm creation in services is significantly higher than that in manufacturing, infrastructure or agriculture.
  • Survey notes that grassroots entrepreneurship is not just driven by necessity.
  • A 10 percent increase in registration of new firms in a district yields a 1.8 % increase in Gross Domestic District Product (GDDP).

Impact of education on entrepreneurship

  • Literacy and education in a district foster local entrepreneurship significantly:
  1. Impact is most pronounced when literacy is above 70 per cent.
  2. New firm formation is the lowest in eastern India with lowest literacy rate (59.6 % as per 2011 Census).
  • Physical infrastructure quality in the district influences new firm creation significantly.
  • Ease of Doing Business and flexible labour regulation enable new firm creation, especially in the manufacturing sector.
  • Survey suggests enhancing ease of doing business and implementing flexible labour laws can create maximum jobs in districts and thereby in the states.

Divestment in public sector undertakings

  • The Survey has aggressively pitched for divestment in PSUs by proposing a separate corporate entity wherein the government’s stake can be transferred and divested over a period of time.
  • The survey analysed the data of 11 PSUs that had been divested from 1999-2000 and 2003-04 and compared the data with their peers in the same industry.
  • Further, the survey has said privatized entities have performed better than their peers in terms of net worth, profit, return on equity and sales, among others.
  • The government can transfer its stake in listed CPSEs to a separate corporate entity.
  • This entity would be managed by an independent board and would be mandated to divest the government stake in these CPSEs over a period of time.
  • This will lend professionalism and autonomy to the disinvestment programme which, in turn, would improve the economic performance of the CPSEs.

Golden jubilee of bank nationalization: Taking stock

  • The survey observes 2019 as the golden jubilee year of bank nationalization
  • Accomplishments of lakhs of Public Sector Banks (PSBs) employees cherished and an objective assessment of PSBs suggested by the Survey.
  • Since 1969, India’s Banking sector has not developed proportionately to the growth in the size of the economy.
  • India has only one bank in the global top 100 – same as countries that are a fraction of its size: Finland (about 1/11th), Denmark (1/8th), etc.
  • A large economy needs an efficient banking sector to support its growth.

The onus of supporting the economy falls on the PSBs accounting for 70 % of the market share in Indian banking:

  1. PSBs are inefficient compared to their peer groups on every performance parameter.
  2. In 2019, investment for every rupee in PSBs, on average, led to the loss of 23 paise, while in NPBs it led to the gain of 9.6 paise.
  3. Credit growth in PSBs has been much lower than NPBs for the last several years.

Solutions to make PSBs more efficient:

  • Employee Stock Ownership Plan (ESOP) for PSBs’ employees
  • Representation on boards proportionate to the blocks held by employees to incentivize employees and align their interests with that of all shareholders of banks.
  • Creation of a GSTN type entity that will aggregate data from all PSBs and use technologies like big data, artificial intelligence and machine learning in credit decisions for ensuring better screening and monitoring of borrowers, especially the large ones.

Doubts regarding GDP Growth

  • GDP growth is a critical variable for decision-making by investors and policymakers. Therefore, the recent debate about accuracy of India’s GDP estimation following the revised estimation methodology in 2011 is extremely significant.
  • As countries differ in several observed and unobserved ways, cross-country comparisons have to be undertaken by separating the effect of other confounding factors and isolating effect of methodology revision alone on GDP growth estimates.
  • Models that incorrectly over-estimate GDP growth by 2.7 % for India post-2011 also misestimate GDP growth over the same period for 51 out of 95 countries in the sample.

Fiscal Developments

  • Revenue Receipts registered a higher growth during the first eight months of 2019-20, compared to the same period last year, led by considerable growth in Non-Tax revenue.
  • Gross GST monthly collections have crossed the mark of Rs. 1 lakh crore for a total of five times during 2019-20 (up to December 2019).
  • Structural reforms undertaken in taxation during the current financial year:
  • Change in corporate tax rate.
  • Measures to ease the implementation of GST.
  • Fiscal deficit of states within the targets set out by the FRBM Act.
  • Survey notes that the General Government (Centre plus States) has been on the path of fiscal consolidation.

External Sector

Balance of Payments (BoP):

  • India’s BoP position improved from US$ 412.9 bn of forex reserves in end March, 2019 to US$ 433.7 bn in end September, 2019.
  • Current account deficit (CAD) narrowed from 2.1% in 2018-19 to 1.5% of GDP in H1 of 2019-20.
  • Foreign reserves stood at US$ 461.2 bn as on 10th January, 2020.

Global trade:

  • India’s merchandise trade balance improved from 2009-14 to 2014-19, although most of the improvement in the latter period was due to more than 50% decline in crude prices in 2016-17.
  • India’s top five trading partners continue to be USA, China, UAE, Saudi Arabia and Hong Kong.


  • Top export items: Petroleum products, precious stones, drug formulations & biologicals, gold and other precious metals.
  • Largest export destinations in 2019-20 (April-November): United States of America (USA), followed by United Arab Emirates (UAE), China and Hong Kong.
  • The merchandise exports to GDP ratio declined, entailing a negative impact on BoP position.
  • Slowdown of world output had an impact on reducing the export to GDP ratio, particularly from 2018-19 to H1 of 2019-20.
  • Growth in Non-POL exports dropped significantly from 2009-14 to 2014-19.


  •  Top import items: Crude petroleum, gold, petroleum products, coal, coke & briquittes.
  •  India’s imports continue to be largest from China, followed by USA, UAE and Saudi Arabia.
  •  Merchandise imports to GDP ratio declined for India, entailing a net positive impact on BoP.
  • Large Crude oil imports in the import basket correlates India’s total imports with crude prices. As crude price raises so does the share of crude in total imports, increasing imports to GDP ratio.

Logistics industry of India:

  • Currently estimated to be around US$ 160 billion.
  • Expected to touch US$ 215 billion by 2020.
  • According to World Bank’s Logistics Performance Index, India ranks 44th in 2018 globally, up from 54th rank in 2014.

Direct investments and remittances:

  • Net FDI inflows continued to be buoyant in 2019-20 attracting US$ 24.4 bn in the first eight months, higher than the corresponding period of 2018-19.
  • Net FPI in the first eight months of 2019-20 stood at US$ 12.6 bn.
  • Net remittances from Indians employed overseas continued to increase, receiving US$ 38.4 billion in H1 of 2019-20 which is more than 50% of the previous year level.

External debt:

  • Remains low at 20.1% of GDP as at end September, 2019.
  • After significant decline since 2014-15, India’s external liabilities (debt and equity) to GDP increased at the end of June, 2019 primarily by increase in FDI, portfolio flows and external commercial borrowings (ECBs).

Monetary Management and Financial Intermediation

Monetary policy:

  • Remained accommodative in 2019-20.
  • Repo rate was cut by 110 basis points in four consecutive MPC meetings in the financial year due to slower growth and lower inflation.
  • However, it was kept unchanged in the fifth meeting held in December 2019.
  • In 2019-20, liquidity conditions were tight for initial two months; but subsequently it remained comfortable.

Prices and Inflation

Inflation Trends:

  • Inflation witnessing moderation since 2014
  • Consumer Price Index (CPI) inflation increased from 3.7 per cent in 2018-19 (April to December, 2018) to 4.1 per cent in 2019-20 (April to December, 2019).
  • WPI inflation fell from 4.7 per cent in 2018-19 (April to December, 2018) to 1.5 per cent during 2019-20 (April to December, 2019).

Drivers of CPI – Combined (C) inflation:

  • During 2018-19, the major driver was the miscellaneous group
  • During 2019-20 (April-December), food and beverages was the main contributor.
  • Among food and beverages, inflation in vegetables and pulses was particularly high due to low base effect and production side disruptions like untimely rain.

Cob-web Phenomenon (Cyclical fluctuations in inflation) for Pulses:

  • Farmers base their sowing decisions on prices witnessed in the previous marketing period.
  • Measures to safeguard farmers like procurement under Price Stabilization Fund (PSF), Minimum Support Price (MSP) need to be made more effective.

Volatility of Prices:

  • Volatility of prices for most of the essential food commodities with the exception of some of the pulses has actually come down in the period 2014-19 as compared to the period 2009-14.
  • Lower volatility might indicate the presence of better marketing channels, storage facilities and effective MSP system.

Essential Commodities Act is outdated

  • The Centre’s imposition of stock limits in a bid to control the soaring prices of onions over the last few months actually increased price volatility, according to the ES.
  • The finding came in a hard-hitting attack in the report against the Essential Commodities Act (ECA) and other “anachronistic legislations” and interventionist government policies, including drug price control, grain procurement and farm loan waivers.
  • The Centre invoked the Act’s provisions to impose stock limits on onions after heavy rains wiped out a quarter of the kharif crop and led to a sustained spike in prices.
  • However the Survey showed that there was actually an increase in price volatility and a widening wedge between wholesale and retail prices.
  • The lower stock limits must have led the traders and wholesalers to offload most of the kharif crop in October itself which led to a sharp increase in the price volatility.


  • Agricultural productivity is also constrained by lower level of mechanization in agriculture which is about 40 % in India, much lower than China (59.5 %) and Brazil (75 %).
  • With regard to the agri sector, the Survey argued that the beneficiaries of farm loan waivers consume less, save less, invest less and are less productive.
  • It added that the government procurement of foodgrains led to a burgeoning food subsidy burden and inefficiencies in the markets, arguing for a shift to cash transfers instead.

Food Management

  • The share of agriculture and allied sectors in the total Gross Value Added (GVA) of the country has been continuously declining on account of relatively higher growth performance of non-agricultural sectors.
  • GVA at Basic Prices for 2019-20 from ‘Agriculture, Forestry and Fishing’ sector is estimated to grow by 2.8 %.

Services Sector

Increasing significance of services sector in the Indian economy:

  1. About 55 % of the total size of the economy and GVA growth.
  2.  Two-thirds of total FDI inflows into India.
  3. About 38 per cent of total exports.
  4. More than 50 % of GVA in 15 out of the 33 states and UTs.

Social Infrastructure, Employment and Human Development

  • The expenditure on social services (health, education and others) by the Centre and States as a proportion of GDP increased from 6.2 % in 2014-15 to 7.7 % in 2019-20 (BE).
  • India’s ranking in Human Development Index improved to 129 in 2018 from 130 in 2017:
  • With 1.34 % average annual HDI growth, India is among the fastest improving countries
  • Gross Enrolment Ratio at secondary, higher secondary and higher education level needs to be improved.
  • Gender disparity in India’s labour market widened due to decline in female labour force participation especially in rural areas:
  • Around 60 % of productive age (15-59) group engaged in full time domestic duties.

Sustainable Development and Climate Change

  • India moving forward on the path of SDG implementation through well-designed initiatives
  • SDG India Index:
  1. Himachal Pradesh, Kerala, Tamil Nadu, Chandigarh are front runners.
  2. Assam, Bihar and Uttar Pradesh come under the category of Aspirants.
  • India hosted COP-14 to UNCCD which adopted the Delhi Declaration: Investing in Land and Unlocking Opportunities.
  • COP-25 of UNFCCC at Mandrid:
  1. India reiterated its commitment to implement Paris Agreement.
  2. COP-25 decisions include efforts for climate change mitigation, adaptation and means of implementation from developed country parties to developing country parties.
  • Forest and tree cover:
  1. Increasing and has reached 80.73 million hectare.
  2. 56 % of the geographical area of the country.
  • The numbers of stubble-burning incidents in 2019 were the least in four years, the Economic Survey says.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Strategy for boosting Wealth CreationDOMRPriority 1


From UPSC perspective, the following things are important :

Prelims level : Not Much

Mains level : Prospects of ethical wealth creation and its redistribution

  • The big idea from the Economic Survey 2019-20 is the need to push towards increasing the number of wealth creators in the Indian economy.
  • The Survey states that to achieve the goal of becoming a $5-trillion economy, the invisible hand of markets will need the support of “the hand of trust”.

Wealth Creation

  • Essentially, this means that regulation and rules in the economy should be such that they make it easy to do business but not turn into crony capitalism.
  • The Survey states: “The invisible hand needs to be strengthened by promoting pro-business policies to:
  1. Provide equal opportunities for new entrants, enable fair competition and ease doing business,
  2. Eliminate policies that unnecessarily undermine markets through government intervention,
  3. Enable trade for job creation, and
  4. Efficiently scale up the banking sector to be proportionate to the size of the Indian economy.”

How can this be done?

  • The Survey introduces the idea of “trust as a public good that gets enhanced with greater use”.
  • In other words, it states that policies must empower transparency and effective enforcement using data and technology to enhance this public good.
  • A key element here is the need to increase the opportunities for new entrants.
  • “Equal opportunity for new entrants is important because… a 10 per cent increase in new firms in a district yields a 1.8 per cent increase in Gross Domestic District Product (GDDP)”.
  • According to the Survey, the right policy mix can boost job creation.

Levers for furthering Wealth Creation

The Survey identifies several levers for furthering Wealth Creation, which are:

  • entrepreneurship at the grassroots as reflected in new firm creation in India’s districts;
  • promote ‘pro-business’ policies that unleash the power of competitive markets to generate wealth as against ‘pro-crony’ policies that may favour incumbent private interests;
  • eliminate policies that undermine markets through government intervention, even where it is not necessary;
  • integrate ‘Assemble in India’ into ‘Make in India’ to focus on labour intensive exports and thereby create jobs at a large scale;
  • efficiently scale up the banking sector to be proportionate to the size of the Indian economy and track the health of the shadow banking sector;
  • use privatization to foster efficiency. The Survey provides careful evidence that India’s GDP growth estimates can be trusted.

Is this push for wealth creators new?

  • This is an extension of what PM said during his Independence Day speech in August last year, where he stressed on the need for the country to view “wealth creators” differently.
  • Those who create wealth for the country, those who contribute in the country’s wealth creation — they all are serving the nation as well.
  • We should not look at wealth creators with apprehension and doubt their intentions; we should not look down upon them.
  • The PM had also said there was a need in the country to give such wealth creators due respect and credit.
  • He had said that this change is required because “If no wealth is created, no wealth can be distributed”.

Focus on Ethical Wealth Creation

  • The Survey emphasised on the importance of ‘Ethical Wealth Creation’, as the key to making India $5 trillion economy by 2025.
  • Krishnamurthy V. Subramanian, the Chief Economic Adviser of Ministry of Finance has done a commendable job in producing a thought-provoking masterpiece on ‘ethical wealth creation.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[op ed of the day] Stay with stimulusop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 3- Provisions in the budget to revive the economy-need for the fiscal stimulus, policies of the Government with respect to agriculture.


The stimulus needs to continue and the reforms will help to keep the economy going. If gross savings and investment rates keep on falling it is difficult to revive the economy.

What was expected in the last budget?

  • Increase in pubic investment: The first thing, it said, was to increase public investment and not play statistical or token announcement games.
  • The upswing in manufacturing growth, from negative to slightly less than 3 per cent (not industrial growth, because that includes mining and electricity), needed consolidation.
  • Real outlays in infra did not go up: Real outlays on the infrastructure needed to go up, but they did not.
    • So the push to private demand and a virtuous cycle of growth was missed.
    • The implicit numbers in the Budget math comprise growth of around 7 per cent, assuming a 5 per cent inflation rate.

Prospects of the Agri-sector

  • A good sign in Agri in midterm: For agriculture, in the medium-term, we are alright. Kharif grain production was 6.4 per cent higher than the previous five-year average output.
    • Kharif oilseeds output around eleven lakh tonnes above the earlier year.
    • This was, however, based on a delayed monsoon which caused problems and anxieties in the second quarter of this year.
  • Nightmare of government unloading grain in the market: Foodgrains are doing well and we have huge food stocks.
    • But, instead of a blessing, the government turned public operations in grain into a nightmare by announcing that FCI will unload grain at a reserve price less than MSP.
    • Rabi acreage recovered and is now 8 per cent more than last year, but the policy of government operations to reduce the market price of grain by its intervention is a nightmare.
  • This is bound to affect input growth in the expanded acreage in the winter crops.

Wrong policy in Agriculture

  • Terms of trade against agriculture: The terms of trade are going against agriculture, according to CACP (Commission for Agricultural Costs & Prices) estimates, and selling of the grain will make it worse.
  • While the fundamentals are alright, to wallop the farmer with a “cut in the reserve price” would harm the farmers.
  • The rabi report of CACP will say that the terms of trade have gone down more.


The Government should continue with the stimulus and opt for the reforms in the economy only to keep the economy going. If the gross savings and investment rates keep falling it would be difficult to revive the economy. If savings keep up, the government will have actual space to divert some real resources to infrastructure investment.





Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Economic Survey & its significanceDOMRPriority 1


From UPSC perspective, the following things are important :

Prelims level : Economic Survey

Mains level : Economic Survey and its significance

With the Indian economy in the doldrums, this year’s Economic Survey will be keenly watched. The Economic Survey for 2019-2020 will be tabled in Parliament today.

What is the Economic Survey?

  • The Economic Survey is a report the government presents on the state of the economy in the past one year, the key challenges it anticipates, and their possible solutions.
  • One day before the Union budget, the Chief Economic Adviser (CEA) of the country releases the Economic Survey.
  • The document is prepared by the Economic Division of the Department of Economic Affairs (DEA) under the guidance of the CEA.
  • Once prepared, the Survey is approved by the Finance Minister.
  • The first Economic Survey was presented in 1950-51. Until 1964, the document would be presented along with the Budget.
  • For the past few years, the Economic Survey has been presented in two volumes.
  • For example, in 2018-19, while Volume 1 focussed on research and analysis of the challenges facing the Indian economy, Volume 2 gave a more detailed review of the financial year, covering all the major sectors of the economy.

Why is the Economic Survey significant?

  • The Economic Survey is a crucial document as it provides a detailed, official version of the government’s take on the country’s economic condition.
  • It can also be used to highlight some key concerns or areas of focus — for example, in 2018, the survey presented by the then CEA Arvind Subramanian was pink in colour, to stress on gender equality.

Is it binding on the government?

  • The government is not constitutionally bound to present the Economic Survey or to follow the recommendations that are made in it.
  • If the government so chooses, it can reject all suggestions laid out in the document.
  • But while the Centre is not obliged to present the Survey at all, it is tabled because of the significance it holds.

What are the expectations from Economic Survey 2020?

  • At a time when India’s growth has plummeted to a six-year low, the Economic Survey ahead of the Union Budget is expected to offer key insights into the path ahead for the government to revive growth.
  • The conundrum of remaining fixated on deficit targets or making a concerted push towards more expenditure to kickstart growth is one of the key challenges the government is facing.
  • The Survey is expected to shed light on the crucial gaps that the Budget will aim to fill in terms of unemployment, private investment, and a slump in consumption.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

 [op-ed snap] Don’t be deterred by the ‘crowding out’ effect of the fiscop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 3- The crowding out effect, effects of the Government borrowing on various variables.


Market borrowings of the government do not always squeeze credit for the private sector in India.

What is ‘crowding out’ effect?

  • Increased government spending and borrowing: It refers to how increased government spending, for which it borrows more money, tends to reduce private spending.
    • Why does private spending reduce? This happens because when the government takes up the lion’s share of funds available in the banking system, less of it is left for private borrowers.
    • Relationship with interest rate: Higher borrowing by the government and subsequent crowding out also impacts interest rates in the economy.

How the Government borrowing works and the role of RBI

  • Local borrowing local spending: Typically, the government funds its fiscal deficit by borrowing from the domestic bond market.
    • Its expenditure is also local in nature.
  • Overdraft from RBI: The Reserve Bank of India (RBI) is the official banker to the government-which spends money by first taking an overdraft from the central bank.
    • This overdraft gets repaid through bond market borrowings.
  • Why overdraft? The understanding is that any such government spending should ideally not affect the availability of funds to other borrowers in the market.
  • Excessive borrowing and effects on the interest rate: Excessive government borrowing from the bond market, many cautions, could lead to a rise in interest rates for the government itself and consequently for everyone else in the economy.

Analysis of the effects of borrowing on other variables

  • Analysis of the data reveals the following trends.
  • No impact on other variables: Local borrowing and spending by the Indian government does not impact any other macroeconomic variables like-
    • The availability and cost of funds for other participants in the economy.
    • Inflation.
    • Deposit growth, at the current deficit level—that is, with the state and central combined figure above 6% of GDP.
  • What impacts the interest rate the most?
    • The two most important variables that impacted interest rates were inflation and the repo rate. Which tend to move together.
    • What does it indicate? This clearly indicates that RBI is extremely proactive in the way it manages interest rates.
  • Effects of funds on inflation: Such borrowings that are funded by the central bank could lead to inflation, the same is true for large external inflows to domestic money markets.
    • The foreign borrowings finally get reflected in the country’s foreign exchange reserves, which have a very strong relationship with inflation.
    • Effects on interest rates: Technically, any large inflow of a foreign currency sterilized by RBI does have the potential to move the inflation needle up, thus placing upward pressure on interest rates.
  • Relationship between borrowing and growth: It is clear that government borrowing and spending actually drives GDP growth.
    • Government borrowing should not impact bank lending to companies, as the sums borrowed return to the market almost immediately.
  • How RBI controls bond yield?
    • RBI ensures that bond yields don’t shoot up because of the excessive borrowing, by taking bonds onto its books to be released back into the market in good times.

The uniqueness of the Indian money market

  • Why is it unique? India market is a unique money market, different from the rest of the world, for the following reasons-
    • We have investors who are explicitly required to invest in government debt.
    • Banks, non-banking financial companies, insurers, provident funds, and pension funds are all forced to invest in government debt as a condition for their licence to operate in India.
    • We also find that RBI works towards aiding the government borrowing programme rather effectively, ensuring that interest rates do not change too adversely.


The government should not be excessively worried about the government living beyond its means at this juncture. Government spending being the main driver for the country’s GDP growth, it could be a good way to put the economy on a higher growth trajectory. Perhaps it is time to revisit the entire FRBM framework.



Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[op-ed snap] Examining the slowdownop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 3- Reasons for the slowdown in the Indian economy, declining household saving, consumption driven growth.


Setting aside the gloomy projections based on short-term economic trends, the long-term and comparative evidence reveal interesting trends about the health of the Indian economy.

Performance of the Indian economy after 1991

  • Higher growth plateau reached after 1991: After the 1991 economic reforms, the Indian economy reached a higher growth plateau of 7% compared to a prior rate of 3. 85%.
    • The high growth rate during 2003-2011: India witnessed a high growth momentum during 2003-04 and 2010-11 with a period average of 8.45% (GDP with base 2004-05) or 7% (base 2011-12).
    • Ups and downs after 2012: The momentum lost steam in 2011-12 and 2012-13, gradually picked up again gradually to reach the 8% mark in 2015-16, and then started falling consistently to reach 6.63% in 2018-19.
    • Structural dimension? This trend suggests that India’s current growth challenge has a structural dimension as it began in 2011-12.
  • Comparison with China and the world
    • Average at 7.07% after 2011-12: Despite these fluctuations from 2011-12, on average, India clocked a growth rate of  7.07% from 2011 to 2019, a decent figure compared to China’s and the world’s economic growth rates.
    • Whereas like India, the growth of the world economy was fluctuating since 2011, China’s growth declined consistently from 10.64% in 2010 to 6.60% in 2018.

Why couldn’t India’s growth momentum be sustained after 2010-11?

  • Analysis of five variables: To answer the above question, an in-depth analysis of trends in five key macroeconomic variables was done for two different periods: 2003-04 to 2010-11 and 2011-12 to 2018-19.
    • Consumption.
    • Investment.
    • Savings.
    • Exports.
    • Net foreign direct investment (NFDI) inflows.
  • What emerged from the analysis: The results reveal that compared to 2003-2011, investment and savings rates and exports-GDP ratio declined in the 2011-2019 period.
    • How much the investment declined? The investment rate declined from 34.31% of GDP in 2011-12 to 29.30% in 2018-19.
    • Household vs. corporate sector decline: The investment decline was caused mainly by the household sector and to some extent by the public sector, but not the corporate sector.
    • The decline in investment compensated by NFDI: The slump in the domestic investment rate in the 2011-2019 period was compensated by increased NFDI inflows.
    • On average, NFDI inflow was 1.31% of GDP during 2011-2019 compared to 0.89% during 2003-2011.

Why tax-cut not help the economy

  • The justified policy of reviving the housing sector: The decline in household sector investment justifies the package of measures introduced by the Central government to revive the housing sector.
  • Why corporate tax cut won’t help much? The questionable policy, however, is the steep cut in the corporate income tax rate from 30% to 22%, aimed at boosting private investment.
    • Given that the corporate investment rate has not eroded severely during 2011-2019, the tax cut would help economic revival.
    • Lost opportunity to spur rural consumption: A part of the largesse offered to Corporate India could have been used to spur rural consumption.

What the decline in saving rate mean?

  • Importance of savings: The savings rate declined almost consistently from 27% of GDP to 30.51% between 2011 and 2018.
    • This was also caused by a significant fall in the savings of the household sector in financial assets. Corporate savings did not fall.
    • Why the fall in household financial savings needs to be increased? The fall in household financial savings is alarming and needs to be arrested.
    • Savings are required to meet the requirements of those who want to borrow for their investment needs.
    • Saving-investment relation: Lower household savings imply lesser funds available in the domestic market for investment spending.
  • Economic growth powered by consumption: The decline in household savings has pushed up private final consumption expenditure consistently
    • Private final consumption rose from 56.21% of GDP in 2011-12 to 59.39% in 2018-19.
    • Consumption driven economic growth in 2011-19: The increase in private consumption suggests that economic growth during 2011-2019 was powered by consumption, not investment.
    • Investment driven growth during 2003-2011: In contrast, during 2003-2011, growth was powered by investments.
  • So, declining saving rate means a slowdown in the economy may not be due to structural issues.
    • Re-examination of popular view: Thus, the popular view that economic slowdown was caused due to a slowdown in consumption demand needs to be re-examined.
    • There is no concrete evidence to suggest that the economy is facing a structural consumption slowdown.

Export-GDP ratio decline and what it means

  • Export-GDP decline from 24.54% to 19.74%: India’s exports-GDP ratio declined from 24.54% to 19.74% during 2011-2019.
  • A trend similar to the rest of the world: The decline started from 2014-15, coinciding with a similar trend in the world export-GDP ratio.
    • However, the drop in India’s exports was significantly larger than the world, a cause for concern.
    • The exports- and NFDI-GDP ratio has deteriorated sharply and consistently in China after 2006.
  • Indian economy doing better than China: Sharp decline in China’s export-GDP and NFDI-GDP, together with the consistent fall in China’s GDP growth after 2010, proves that the Indian economy is doing better than China.


The popular view that the slowdown in the Indian economy is due to the structural problems needs a re-examination in the view of the decline in investment in tandem with the world.


Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Explained: Fiscal MarksmanshipExplained


From UPSC perspective, the following things are important :

Prelims level : Fiscal Marksmanship

Mains level : Signs of economic slowdown in the country

Over the past few years, many have questioned the government’s fiscal marksmanship.

What is fiscal marksmanship?

  • Fiscal marksmanship essentially refers to the accuracy of the government’s forecast of fiscal parameters such as revenues, expenditures and deficits etc.
  • In other words, if the difference between what the government projected as the likely tax revenues in the Budget and the actual figures a year later is large then it reflects poor fiscal marksmanship.
  • In the Indian context, this term gained popularity after Raghuram Rajan, then India’s Chief Economic Advisor stressed on fiscal marksmanship in the Economic Survey for the year 2012-13.
  • He had defined fiscal marksmanship as “the difference between actual outcomes and budgetary estimates as a proportion of GDP”.

Why does fiscal marksmanship matter?

  • The salience of Budget numbers lies in their credibility.
  • The central purpose of publicly disclosing the Budget or the annual financial statement in a democracy and seeking approval from the legislature is to make the policymaking and governance transparent and participatory.
  • Everyone knows that Budget numbers are forecasts and estimates, and as such, unlikely to tally exactly with the actual numbers a year later.
  • But there is an underlying belief among people that when the government states, say, that its revenues will grow by 12% or that its fiscal deficit will remain within the FRBM Act’s mandate as it is based on genuine calculations.
  • However, if these fiscal forecasts turn out to be way off the mark repeatedly, it will undermine the credibility of the Budget numbers and indeed the Budget presentation itself.

Why is India’s fiscal marksmanship being questioned?

Typically, the fiscal marksmanship tends to get dented every time the economy faces a bump during the financial year.

  • For instance, as a result of the extent of the Global Financial Crisis in 2008, budget forecasts in the ensuing years did take a hit.
  • The latest trigger has been the wide discrepancy between what the last couple of budgets — first the interim budget for 2019-20 (presented in February 2019) and then the full budget for 2019-20 (presented in July 2019).
  • It expected the nominal GDP growth to be in 2019-20 and what the First Advance Estimates (FAE), released by the Ministry of Statistics and Programme Implementation in January 2020.
  • For instance, the July 2019 Budget expected nominal GDP to grow by 12% in 2019-20 but the FAE expect the nominal GDP to grow by just 7.5% (which by the way is a 42-year low).
  • Since all budget calculations are based on the nominal GDP, it is expected that this wide variance in nominal GDP will reflect across the board in the coming Budget.

Impact on revenue

  • The government’s revenues are unlikely to grow anywhere close to the last Budget’s expectation.
  • Indeed, the revenue shortfall is expected to be anywhere between Rs 2 lakh crore to Rs 5 lakh crore.
  • As a result, either the fiscal deficit will overshoot from the budgeted number or the expenditure numbers will be much lower than promised.

Why has fiscal marksmanship worsened?

  • As mentioned earlier, when an economy’s growth slows down (or picks up) sharply within a year, it is possible that the fiscal forecasts for that year go down (or up) substantially.
  • However, such changes do not happen too often.
  • In the recent past, however, there is one structural change that appears to be contributing to poor fiscal forecasts by the government.
  • This structural change was the government’s decision in January 2017 to advance the presentation of the Union Budget by a whole month.
  • Accordingly, the Union Budget for 2017-18 was presented on February 1 instead of the last working day of February (28th or 29th), as was the norm till then.
  • It meant that the First Advance Estimates, which used to come by January end (after taking into account the economic activity of the first three quarters of the financial year), had to be brought out by the start of January.
  • This, in turn, essentially meant that the estimate of the key nominal GDP data for the current year — on the base of which next year’s nominal GDP and other estimates were to be made — had to be made using the first two quarters of the current fiscal year.

Why didn’t the government course-correct and project slower economic growth in July 2019 when it presented the full Budget for 2019-20?

  • It is unclear why this was not done. But could be two or three possible reasons.
  • One, the FM may have favoured continuity over the Interim Budget estimates instead of providing a starkly different set of estimates.
  • Two, and a related reason, could be that the government did not have enough time to make the adjustment because it may have required redoing the whole Budget afresh.
  • Or third, because perhaps the government did not recognise the severity of the economic slowdown that has been underway.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[op-ed snap] Budgeting for jobs, skilling and economic revivalop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Not much

Mains level : Paper 3- Suggestions for revival of the Indian economy, unemployment in rural and urban areas and ways to increase it by investing in various sectors.


With the unemployment rate at 6.1 (2017-18), not just the future of the economy, the future of the country’s youth depends on the Budget.

Unemployment and other indicators of the economy

  • Unemployment in urban youth: The unemployment rate for urban youth in the 15-29 years category is alarmingly high at 22.5%.
    • These figures, however, are just one of the many problems, as pointed out by the Periodic Labour Force Survey.
  • The decline in labour force participation: The Labour Force Participation Rate has come down to 46.5% for the ‘15 years and above’ age category.
    • It is down to 37.7% for the urban youth. Even among those employed, a large fraction gets low wages and are stuck with ‘employment poverty’.
  • The decline in investment: The aggregate investment stands at less than 30% of the GDP, a rate much lower than the 15-year average of 35%.
  • The decline in capacity utilisation: The capacity utilisation in the private sector is down to 70%-75%.

Where the Budget should focus to reduce rural employment?

  • Revive demand: The Budget should also focus on reviving demand to promote growth and employment.
    • PM-KISAN and MGNREGA: Schemes like PM-KISAN and Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) are good instruments to boost rural demand.
    • Unutilised fund: a significant proportion of the budgetary allocation for PM-KISAN will go unutilised.
  • Why income transfers through such schemes matter?
    • Spend most of their income: Farmers and landless labourers spend most of their income. This means that income transfers to such groups will immediately increase demand.
    • Consumes a wide range of goods: Further, rural India consumes a wide range of goods and services; so, if allocation and disbursement are raised significantly, most sectors of the economy will benefit.
    • Immediate result: And such transfer will have the immediate payoff.
  • Allocate to irrigation and infrastructure projects
    • How allocation could matter: Rural unemployment can be reduced by raising budgetary allocation for irrigation projects and rural infrastructures like roads, cold storage and logistical chains.
    • These facilities, along with a comprehensive crop insurance scheme, can drastically increase agricultural productivity and farmers’ income.
    • The decrease in wastage and reduction in inflation shocks: Moreover, by integrating farms with mandis, such investments will reduce wastage of fruits and vegetables, thereby leading to a decrease in the frequency of inflationary shocks and their impact.

Where the Budget should focus to reduce urban unemployment?

  • Focus on construction and related activities: In urban areas, construction and related activities are a source of employment for more than five crore people.
    • Second only to agriculture: Across the country, the sector’s employment figures are second only to those of the agriculture sector.
    • Construction as the backbone of other sectors:  These projects, along with infrastructure, support 200-odd sectors, including core sectors like cement and steel.
  • Problems with the construction sector:
    • Construction sector at a halt due to legal disputes: Due to the crisis in the real estate and infrastructure sectors, construction activities have come to a grinding halt.
    • At present, many real-estate projects are caught up in legal disputes-between home-buyers and developers; between lenders and developers; and between developers and law enforcement agencies like the Enforcement Directorate.
    • Unsold inventories: The sector has an unsold inventory of homes, worth several lakh crores.
    • Multiple authority as regulator and problem in liquidation: Multiple authorities -the Real Estate Regulatory Authority (RERA); the National Company Law Tribunal (NCLT); and the many consumer courts -have jurisdiction over disputes.
    • Consequently, restructuring and liquidation of bad projects are very difficult, and in turn, is the main source of the problem of NPA faced by the NBFCs.
  • What should be done to increase the demand in the construction sector?
    • Raise the tax exemption limit: To revive demand for housing, the Budget can raise the limit for availing tax exemption on home loans.
    • Use the bailout fund: The ₹25,000-crore fund set up by the centre to bailout 1,600 housing projects should be put to use immediately.
    • The funds should be used to salvage all projects that are 80% complete and not under the liquidation process under the NCLT.
    • Single adjudication authority: Several additional measures can also help. For example, there should be a single adjudication authority.
    • NIP and its significance: The ₹102-lakh-crore National Infrastructure Pipeline (NIP) programme is a welcome step. If implemented successfully, it will boost the infrastructure investment over the next five years by 2%-2.5% of the GDP annually.

Problems with National Infrastructure Pipeline

  • Problems of 60% investment: The problem is that more than 60% of the planned investment is expected from the private sector and the States.
    • Regulatory certainty a must for the private sector: The government does not seem to realise that for private investment, regulatory certainty is as important as the cost of capital.
    • Regulatory hurdles: Many infrastructure projects are languishing due to regulatory hurdles and contractual disputes between construction companies and government departments.
    • The reason behind the non-availability of private capital: As a result of the regulatory hurdles infrastructure investment has come to be perceived as very risky.
    • This is the major reason behind the non-availability of private capital for infrastructure.
  • Role to be played by the Centre: This is a scenario, where the private sector has very little appetite for risky investments and State finances are shaky due to low GST collection.
    • Responsibility of the Centre: The onus is on the Centre to ensure that the programme does not come a cropper. The budgetary support to infrastructure will have to be much more than the NIP projection at 11% of the GDP.

Way forward to revive the economy

  • Focus on completing the incomplete projects:
    • Bidding a lengthy process: Bidding and contracting for new roads, highways, railway tracks and urban development projects is a lengthy process.
    • This is also the reason why several infrastructure-linked Ministries like those for civil aviation and roads have not been able to spend money allocated to them in the current fiscal year.
    • Completing the projects a priority: Therefore, rather than earmarking budgetary support for new projects, the focus should be on projects that are currently under implementation so as to complete them as soon as possible.
    • Funding should be front-loaded: That is, funding should be front-loaded. In addition to creating employment, timely completion of infrastructure projects will help increase the competitiveness of the economy.
  • Address the distress in SMEs: The distress among Small and Medium Enterprises (SMEs) is another area of concern.
    • GST anomaly and stuck money: For many products produced by these enterprises, the GST rates are higher for inputs than the final goods. Due to this anomaly, around ₹20,000 crore gets stuck with the government annually in the form of input tax credits.
    • This has increased cost of doing business for SMEs, which employ over 11 crore people.
  • Fill the vacancies in the Government jobs: According to some estimates, there are more than 22 lakh vacancies in various government departments.
    • Focus on vocational training program: The government needs to provide affordable and good quality vocational training programmes.
    • To stop the demographic dividend from becoming a national burden, there is a need to invest heavily in skilling of the youth.
    • Besides, the Budget should give tax incentives to companies and industrial units to encourage them to provide internships and on-site vocational training opportunities.


Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[op-ed snap] Where demand has goneop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 3- Role of informal sector in Indian economy, How expansionary fiscal policy can help more than represented in the official data.


That India is in the midst of a serious economic slowdown is no longer in question. The debates are now mostly about what to do about it.

Where is the GDP growth coming from?

Fall in consumption expenditure in absolute terms: The leaked National Sample Survey (NSS) consumer expenditure data -shows that real monthly per capita expenditure has in fact fallen in absolute terms between 2011-12 and 2017-18.

  • 8 % decline in a rural area: In rural areas, consumption expenditure decreased by 8.8 per cent.
  • 2% decline in an urban area: While in urban areas it increased by 2 per cent, leading to an all India decline of 3.7 per cent.
  • Where is the growth coming from: If average consumer expenditure is down, then where is the GDP growth coming from?
    • Consumer expenditure contribution: After all, according to National Accounts Statistics (NAS) consumer expenditure is around 60 per cent of the GDP.
    • And given the other contributors to GDP-investment and government spending- are not growing spectacularly, consumer expenditure should be growing rather than decreasing.
    • So, to get an overall 5 per cent growth rate, consumer expenditure should be growing at higher than 5 per cent.
  • NSS vs. NAS- a genuine puzzle: How can consumption expenditure be going down in absolute terms according to the NSS estimates and be growing at more than 5 per cent according to the NAS?
    • Variation in data a norm: That these two types of estimates of consumption expenditure do not match is well-known, and that is the case in other countries as well.
    • The discrepancy at alarming proportions: In the 1970s, consumer expenditure according to NSS estimates was around 90 per cent of consumer expenditure according to NAS, but in 2017-18 it was only 32.3 per cent.
    • Data from two different countries: It is as if we are looking at data from two different countries.
    • One where the consumption expenditure growth is positive and propping up the GDP growth rate and the other where it is actually falling.

A few inferences that pertain to the state of the economy and the policy options.

  • Reasons for the discrepancy between NSS data and NAS data.
  • First- Presence of large informal sector:
    • 50% contribution to GDP: Informal sector accounts for nearly half of the GDP and employs 85 per cent of the labour force.
    • Guesswork on performance: In national income accounts, growth in the informal sector is estimated by extrapolating from the performance of the formal sector. Which is largely guesswork.
  • Second- Making effects of the expansionary policy less pronounced:
    • Expansionary fiscal policy more effective than appear to be: Because of the presence of the informal sector, expansionary fiscal policy will be more effective than what would appear from official statistics, as a big part of its impact will be felt in the informal sector.
    • Why is it so? The reason is that a big segment of the population is located in the informal sector; they are poorer and tend to spend a much higher fraction of their income on consumption.
    • This group has been seriously affected by the economic slowdown.
  • Third-Results of expansionary policy would be apparent after a delay
    • Apparent effects of policy much worse than what it would be: The effect of an expansionary policy on the budget deficit will look much worse than what it would be since the estimates of its effect on income expansion and tax collection will be largely based on the formal sector.
    • Informal sector boosting the formal sector: Some of the income generated in the informal sector will boost demand in the formal sector through consumer demand for mass-consumption items (for instance, biscuits, as opposed to automobiles).
    • Good medium-term pictures: Therefore, in the medium term, once the engine of the economy starts moving, the income expansion and deficit numbers will look better.
  • Final-Tax cuts will achieve little
    • Only 3-5% population affected: The tax cut will affect barely 3-5 per cent of the adult population.
    • Contribution of taxes in GDP: Income tax revenues amount to around 5 per cent of the GDP and corporate income taxes around 3.3 per cent.
    • Rich tends to save more: Most of the tax is paid by the richest among these groups (the top 5 per cent taxpayers contribute 60 per cent of individual income tax revenue), and the rich tend to spend a smaller fraction of their income (and save more).
    • Little impact on GDP: Irrespective of the number of people affected, and even if they spend the entire increase in their income as a result of the tax cut, the overall economic impact will be small relative to the GDP.
    • The futility of tax cut: Therefore, a tax cut for the rich would be less effective in raising spending compared to an equivalent amount being given to poorer groups who spend a much higher fraction of their incomes.


The government should not underestimate the role of the informal sector in the economy. To get the engine of the economy revving, an expansionary fiscal policy that harnesses the energy of the informal sector to boost aggregate demand is the order of the day.



Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[op-ed snap] Redesigning India’s ailing data systemop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 3- National accounting and problems in associated with the data collection and methods.


As official statistics is a public good, giving information about the state of the economy and success of governance, it needs to be independent to be impartial.

GDP calculation and its significance

  • What is GDP:
    • Assigning a value to products and services: In effect, it adds apples and oranges, tractors and sickles, trade, transport, storage and communication, real estate, banking and government services through the mechanism of value.
    • GDP covers all productive activity for producing goods and services, without duplication.
    • The System of National Accounting (SNA): It is designed to measure production, consumption, and accumulation of income and wealth for assessing the performance of the economy.
  • What is the significance of GDP data?
    • Influence the market: GDP data influence markets, signalling investment sentiments, the flow of funds and balance of payments.
    • The input-output relations impact productivity and allocation of resources.
    • Demand and supply influences prices, exchange rates, wage rates, employment and standard of living, affecting all walks of life.
  • Issues over the present series of GDP:
    • Nominal GDP: The data on GDP are initially estimated at a current price known as nominal GDP.
    • Real GDP: Nominal GDP minus the inflation effect is real GDP.
    • Price Index: There is a way of adjusting inflation effect through an appropriate price index.
    • Pricing series issue with the service sector: The present series encountered serious problems for the price adjustment, specifically for the services sector contributing about 60% of GDP.
    • Absence of price index: There is an absence of appropriate price indices for most service sectors.
    • What the absence of series means: The deflators used in the new series could not effectively separate out price effect from the current value to arrive at a real volume estimate at a constant price.
    • Methodical issue: Replacing Annual Survey of Industries (ASI) with the Ministry of Corporate Affairs MCA21 posed serious data and methodological issues.

Need for the change in the approach of data collection

  • The approach for the collection of data remains largely the same for long.
    • Price and production indices are constructed using a fixed base Laspeyres Index.
    • The yield rate for paddy is estimated by crop cutting experiments.
    • The organisation of field surveys for collection of data on employment-unemployment, consumer expenditure, industrial output, assets and liabilities continue.
  • Why data collection for yields need to change?
    • Productivity and remunerative price of output are major concerns for agriculture.
    • Data collection from diverse factors: It is necessary to collect data on factors such as soil conditions, moisture, temperature, water and fertilizer use determining yield, the impact of intermediary and forward trade on farm gate price and so on.
    • Israel collects these data for analysis to support productivity.
    • Need to leverage the e-governance: The initiative under e-governance enabled the capturing of huge data, which need to be collated for their meaningful use for the production of official statistics.

Data Logistics

  • Need of data from the other areas: Along with GDP, we need data to assess-
    • Inclusive growth.
    • Fourth-generation Industrial Revolution riding on the Internet of things.
    • Robotics-influencing employment and productivity.
    • Environmental protection.
    • Sustainable development and social welfare.
  • How to deal with the data inconsistency
    • We need systems which have the capability to sift through a huge volume of data seamlessly to look for reliability, validity, consistency and coherence.
    • Such a system is possible through a versatile data warehouse as a component of bigdata technology.
    • Rangarajan Committee recommendation: Setting up of such system has been wanting as thoughtful and well-meaning key recommendations of the Rangarajan Commission and subsequent recommendations from 2006 onwards by successive National Statistical Commissions.

Way forward

  • The need for a new system: The present national accounting and analytical framework miss out on many important dimensions of the economy.
    • We need a new framework for analysis for such a complex system and evolutionary process.
    • The system needs to take into account automation, robotisation and other labour-replacing technologies affecting profitability, structural change and general welfare.
  • Need to find alternative avenues for the unemployed and jobs lost: In order to inject efficiency and stability, there is a need to have detailed data on how: markets clear, prices are formed, risks build-up, institutions function and, in turn, influence the lifestyle of various sections of the people.
  • Knowing market microstructure: It is also needed to know in greater detail about market microstructure and optimality therein, the role of technology and advanced research, changing demand on human skills, and enterprise and organising ability.
  • Monopoly must be contained:  The loss caused to the economy through monopoly power, inefficient input-output mix, dumping, obsolete technology and product mix must be contained.
  • Ensure distribution of wealth: The consensus macroeconomic framework of analysis assumes symmetric income distribution and does not get into the depth of structural issues.
    • In the changed situation of availability of microdata, there is a need to build a system to integrate the micro with the macro, maintaining distributional characteristics.


Data is the new oil in the modern networked economy in pursuit of socio-economic development. The economics now is deeply rooted in data, measuring and impacting competitiveness, risks, opportunities and social welfare in an integrated manner, going much beyond macroeconomics. There is a need for commitment to producing these statistics transparently.



Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[op-ed snap] The perils of RBI’s fixation on inflationop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 3- Inflation targeting by RBI, and other mandates of RBI.


The RBI’s responsibility to regulate the financial sector may have taken a back seat after the adoption of inflation targeting as the main objective. Has a fixation with inflation rate made the RBI take its eyes off the loan books of the banks?

Evolution of the role of the Central Banks

  • Maintaining financial stability: The establishment of some of the world’s oldest central banks was inspired by the goal of maintaining financial stability.
    • Harm to the depositors: It was recognised that when private commercial banks fail, whether due to malfeasance or misjudgement, they harm their trusting depositors.
    • Harm to the entire system: But when banks fail they not only harm the depositors they can also take down with them the rest of the financial system.
  • Banks lending to one another: The entire financial system also gets harmed when banks have lent to one another, which is not uncommon.
    • The collapse of credit: In the crisis that ensues, there is a collapse of credit which, in turn, leads to a downturn in economic activity.
  • Lender of last resort: To avoid this, the central bank was conceived of as the lender of last resort.
    • Prevention of run on the banks: Lender of last resort is the one that could pre-empt a run on banks and give them time to put their books back in order.
    • Regulation of banks: However, this was to be accompanied by the adoption of a tough regulatory stance.
    • Whereby the central bank would stay hawk-eyed towards the activities of banks, particularly risky lending.
  • Rise of neo-liberalism and change in a role: With the rise of neoliberalism, the central tenet of which is that markets should be given free play, the regulatory role of central banks took a back seat.
    • Inflation control as primary role: The Central banks came to be primarily mandated with inflation control.

Inflation targeting and regulation of the financial market by RBI

  • Multiple indicator approach: In India, the RBI had earlier pursued a ‘multiple indicators approach’.
    • What was the multiple indicator approach: The approach involves concern for outcomes other than inflation, including even the balance of payments.
    • Discouraging the approach: Developments in economic theory discouraged ‘multiple indicators approach’.
    • It was argued that having economic activity as an objective of monetary policy leads to higher inflation.
  • Favouring low inflation over lower unemployment: Discouraging the ‘multiple indicator approach’ encouraged low inflation over low unemployment.
  • Inflation targeting as the sole objective of monetary policy: The Indian government also instituted inflation targeting as the sole objective of monetary policy.
    • The fixed target for the RBI: The RBI was permitted to exceed or fall short of a targeted inflation rate of 4% by a margin of 2 percentage points.
  • But have the RBI’s original mandate as a central bank been met?
    • IL&FS crisis: In 2018, within three years of the adoption of inflation targeting goal, a crisis engulfed IL&FS, a non-banking financial company in the infrastructure space.
    • Not a small player: It operated over 100 subsidiaries and was sitting on a debt of ₹94,000 crores.
    • Effects of default: Given this, IL&FS default had a chilling effect on the investors, banks and mutual funds associated with it both directly or indirectly.
    • PMC bank crisis: In 2019, a run on the Punjab and Maharashtra Co-operative Bank had to be averted by imposing withdrawal limits.
    • Outright fraud in PMC case: While in the case of IL&FS, some part of the problem may have been caused by a slowing economy, outright fraud underlay the crisis at PMC Bank.
    • Raghavendra Sahakara Bank case: In early 2020, curbs have had to be placed on withdrawals from the Bengaluru-based Sri Guru Raghavendra Sahakara Bank.
  • Pertinent question
    • Regulatory sector at the backseat? It is not too early to ask if the RBI’s responsibility to regulate the financial sector may have taken a back seat after the adoption of inflation targeting as the main objective.
    • Has a fixation with inflation rate made the RBI take its eyes off the loan books of the banks?

The recent rise in inflation and shortfall of currency notes

  • Inflation at 7%: At over 7%, the inflation rate in December is the highest in five years.
    • Not cause of concern: This may not be the reason to panic, for the price rise could be seasonal and may well abate.
    • Question on inflation targeting: But it does raise a question on the efficacy of inflation targeting as a means of inflation control.
    • Reason for moderate inflation so far: If the inflation rate was within the intended range so far, that may have been due to both declining food prices and, for a phase, oil prices.
  • The shortfall of notes: The central bank has a monopoly on the issue of notes.
    • There is an absolute shortage of small denomination notes in the bazaars of India.
    • Small-denomination notes are mostly unavailable.


While focusing on the inflation, the Central bank also needs to keep the other mandates especially the regulation of the finance sector in check.



Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[op-ed snap] A rough patchop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 3- Rising inflation-slowing growth rates and its consequences for Indian economy.


High inflation has reduced the fiscal space available for a rate cut.

RBI target of 6% breached.

  • CPI at 7.35 %: Retail inflation, as measured by the consumer price index (CPI), has surged to 7.35 per cent in December 2019.
  • Latest inflation data seems to corroborate fears articulated by the Monetary Policy Committee (MPC) in its December meeting.
  • In the meeting, MPC refrained from cutting the benchmark repo rate.

Consequences for the economy

  • Reduced scope for fiscal slippage: High inflation reduced the space for further easing of policy rates.
    • Even after clarity over the extent of the Centre’s fiscal slippage emerged.
  • Rise in yield for 10-year securities: The 10-year G-sec yields have reacted sharply to these developments, rising to 6.67 on Tuesday.
    • Offsetting operation twist: Rise in yield resulted in offsetting the impact of the RBI’s recent open market operations.
  • Inflation targeting under stress: The combination of weak economic activity and higher than expected supply-side inflationary pressures has put the inflation-targeting regime under test.

Reasons for the inflation rise and chances of easing

  • Food prices rise: Much of the rise in the headline inflation number can be traced to higher food prices.
    • Food inflation has risen to a near six-year high of 14.12 per cent in December 2019, up from 10.01 per cent in the previous month.
    • Vegetable prices have surged to 60.5 per cent in December, contributing nearly 3.7 percentage points to the headline numbers.
  • Chances of ease in coming months: While vegetable crop cycles tend to be short, and supply-side pressures may ease in the coming months.
    • The stickiness in prices of protein items is likely to provide a floor for food inflation.

Bleak outlook for inflation easing

  • No short-term return to normal level: Food inflation is unlikely to revert to previous levels in the short term.
  • Household inflation expectations, a key metric in the MPC’s assessment, are more responsive to food inflation, this will further exert upward pressure on MPC.
  • A factor of hostilities in the Middle East: The uncertainty over oil prices on account of hostilities in the Middle East, adds to the bleak outlook for inflation.


With limited fiscal space for a meaningful stimulus, the government intends to support the economy during this rough patch, and return growth to a higher trajectory.


Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Explained: The fundamentals of the Indian EconomyExplainedPriority 1


From UPSC perspective, the following things are important :

Prelims level : Fundamentals as mentioned in the newscard

Mains level : Fundamentals of Indian Economy

PM Modi highlighted the strong absorbent capacity of the Indian economy while referring to certain fundamentals. He emphasized the strength of these basic fundamentals in absorbing the shocks of ongoing economic slowdown.

What are the ‘fundamentals of an economy’?

  • The PM has reiterated a phrase of reassurance — underscoring the strong fundamentals of the Indian economy — that has been often used by policymakers in the past when the economy is seen to be faltering.
  • When one talks about the fundamentals of an economy, one wants to look at economy-wide variables such as the overall GDP growth, the overall unemployment rate, the level of fiscal deficit, the valuation of a country’s currency against the US dollar, the savings and investment rates in an economy, the rate of inflation, the current account balance, the trade balance etc.
  • There is intuitive wisdom in looking at these “fundamentals” of an economy when it goes through a tough phase.
  • Such an analysis, when done honestly, can give a sense of how deep the strain in an economy run.
  • It can answer the question whether the current crisis just an exaggerated response to a sectoral problem or is there something more “fundamentally” wrong with the economy that needs urgent attention and “structural” reform.
  • To be sure about the broader health of the economy, one looks at the broader variables. That way, one reduces the chances of getting the diagnosis wrong.

Their relevance

  • The first advance estimates of national income for the current financial year, released earlier in the week, found that nominal GDP was expected to grow at just 7.5% in 2019-20.
  • This is the lowest since 1978. Real GDP is calculated after deducting the rate of inflation from the nominal GDP growth rate.
  • So, if for argument sake, the inflation for this financial year is 4%, then the real GDP growth would be just 3.5%.
  • Just for perspective, the Union Budget presented in July 2019 expected a real GDP growth of 8% to 8.5% and a nominal GDP growth of 12% to 12.5%, with a 4% inflation level.

So, what is the current state of the fundamentals?

The data on most variables that one may call as fundamentals of the Indian economy are struggling.

  • Growth rate — both nominal and real — has decelerated sharply; now trending at multi-decade lows. Gross Value Added, which maps economic growth by looking at the incomes-generated is even lower; and its weakness in across most of the sectors that traditionally generated high levels of employment.
  • Inflation is up but the consolation is that the spike is largely due to transient factors.
  • However, a US-Iran type of conflagration could result is a sharp hike in oil prices and, as such, domestic inflation may rise in the medium term.
  • Unemployment is also at the highest in several decades.According to some calculations, between 2012 and 2018, India witnessed a decline in the absolute number of employed people — the first instance in India’s history.
  • Fiscal deficit, which is proxy for the health of government finances, is on paper within reasonable bounds but over the years, the credibility of this number has come into question. Many, including the CAG, has opined that the actual fiscal deficit is much higher than what is officially accepted.
  • Bucking the trend, the current account deficit, is in a much better state but trade weakness continues as do the weakness of the rupee against the dollar; although on the rupee-dollar issue, a case can be made that the rupee is still overvalued and thus hurting India’s exports.
  • Similarly, while the benchmark stock indices have run up, and grabbed all attention, the broader stock indices like the BSE500 have struggled.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Explained: First Advance Estimates (FAE)Explained


From UPSC perspective, the following things are important :

Prelims level : GDP, GNP, GVA etc.

Mains level : First Advance Estimates

The First Advance Estimates (FAE) were recently released by the Ministry of Statistics and Programme Implementation (MoSPI).

The First Advance Estimates and their significance

  • The First Advance Estimates (FAE) extrapolate a variety of data, such as the Index of Industrial Production (IIP), the financial performance of listed companies, first advance estimates of crop production etc., for the first 7 to 8 months to arrive at the annual figure.
  • The significance of the FAE is that this is the final bit of official data before the government presents its next Budget.
  • The sector-wise Estimates are obtained by extrapolation of indicators like-
  1. IIP of first 7 months of the financial year,
  2. financial performance of Listed Companies in the Private Corporate sector available upto quarter ending September, 2019
  3. 1st Advance Estimates of Crop production,
  4. accounts of Central & State Governments, information on indicators like Deposits & Credits, Passenger and Freight earnings of Railways, Passengers and Cargo handled by Civil Aviation, Cargo etc., available for first 8 months of the financial year”.

Estimates for 2018-19

  • It estimated India’s GDP will grow by just 5 per cent in the current financial year (2019-20). Last financial year, 2018-19, the Indian economy grew at 6.8 per cent.
  • The gross value added (GVA), which maps the economic activity from the income side as against the GDP which maps it from the expenditure side, is expected to grow by 4.9 per cent in 2019-20 as against 6.6 per cent in 2018-19.

Drivers of the GDP

There are four main drivers of the GDP:

  • One, the private consumption expenditure – that is the expenditure that you and I make in our personal capacity. This category has grown by just 5.7 per cent in 2019-20 while it grew by 8 per cent last financial year.
  • The second driver is the expenditure made by the Government. This grew by 10.5 per cent, which is higher than the rate of growth (9.2 per cent) in the last financial year.
  • But the most disappointing number is the deceleration in business investments in the economy.
  • This driver, which is the key to sustainable long-term growth, grew by less than 1 per cent; last financial year it grew by 10 per cent.
  • This shows that while the private consumption demand is tepid, businesses have completely turned off the tap on new investments despite the government making a once-in-generation cut in corporate taxes.

Performance in terms of GVA

  • The GVA data provides a detailed picture. Given that the overall GVA has decelerated sharply, almost all sectors have witnessed slower growth in economic activity.
  • Only “Public Administration, Defence and Other Services,“ which essentially measures how the government did, grew by 9.1 per cent.
  • All other sectors saw a GVA growth that was slower than the average growth in the last financial year.
  • The worst performing sectors are ‘Agriculture, Forestry and Fishing’, ‘Mining and Quarrying’, ‘Manufacturing’ and ‘Construction’, which are expected to see a GVA growth of 2.8 per cent, 1.5 per cent, 2.0 per cent and 3.2 per cent respectively.


Real vs. Nominal GDP

  • GDP is the total market value of all goods and services produced in the economy during a particular year, inclusive of all taxes and subsidies on products.
  • The market value taken at current prices is the nominal GDP.
  • The value taken at constant prices — that is prices for all products taken at an unchanged base year (2011) — is the real GDP.
  • In simple terms, real GDP is nominal GDP stripped of inflation.
  • Real GDP growth thus measures how much the production of goods and services in the economy has increased in actual physical terms during a year.
  • Nominal GDP growth, on the other hand, is a measure of the increase in incomes resulting from rise in both production and prices.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[oped of the day] India needs a bottom-up growth modelop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Nothing much

Mains level : Economic growth - approach for India


India’s decision to stay out of the Regional Comprehensive Economic Partnership until the needs of the country’s small enterprises, farmers, and poorest citizens are properly addressed dismayed by many economists. 

Reasons for the decision

  • Indian government feared that the increase in Chinese exports would harm small producers and farmers.

India – China

  • China and India embarked on new journeys around the same time.
  • More than 70 years later, China has progressed much faster. 
  • India is yet to reach the development indicators that China attained back in the early 1990s.
  • A Chinese thought leader said 15 years ago that both countries have the same vision: of prosperity for their citizens.

People-centric policies

  • They need to make their policies people-centric rather than growth-centric. The Communist Party of China demands that local officials address the needs of citizens effectively, as does Singapore’s government. 
  • The Chinese government derives its legitimacy from citizens’ satisfaction with their well-being, not from a vote in an election.
  • In the case of India, its constitutional structure enables its States to adopt different models of development. 
  • There is a ‘Kerala model’, a ‘Gujarat model’, and now a ‘common man’s model’ implemented by the Aam Aadmi Party (AAP) in Delhi.


  • Local, participative governance has been a distinction of Kerala’s model
  • The State has been well ahead of the rest of the country, matching China in its Human Development Indicators in education, health, and women’s inclusion.


  • Delhi’s AAP government has adopted a people-centric model of government. It has established School Management Committees with parental involvement. Teacher training budgets have increased five-fold. 
  • The performance of Delhi’s government schools is not only higher than the national average, it now exceeds the performance of private schools in Delhi. 
  • Public health expenditures have more than doubled. ‘Mohalla clinics’ have been set up in poor colonies to provide accessible and affordable health care.
  • The share of unauthorized colonies provided with piped water has increased from 55% to 93% in just five years.
  • This reduced the need for poor people to pay for expensive tanker-delivered water. 
  • Despite water subsidies for the poor, the Delhi Jal Board’s income has increased. 
  • Electricity supply has expanded to include 20% more consumers. Amongst Indian metros, Delhi provides the cheapest electricity. 
  • Still, its distribution companies, all in the private sector, have improved their financial performance.

Increase in disposable incomes

  • The government has computed that its programs for improving the ‘ease of living’ of citizens and reducing the costs of a range of public services has increased savings per family by ₹4,000 per month. 
  • The increase in disposable incomes has resulted in additional consumer-buying power, estimated at ₹24,000 crores per annum.
  • This proves that growth must be bottom-up to be equitable and sustainable. 
  • India has climbed many rungs on the World Bank’s ‘Ease of Business’ rankings. Yet, investments to expand production ventures have not increased much because consumer demand, even for basic items like packaged biscuits fell. 
  • Democratically elected governments such as India, who should be focused on citizens’ well-being, have become focused on making it easy for global capital to do business in their countries. 
  • This has made citizens rise up against the globalization paradigm promoted by an ‘establishment’ of policymakers and economists. 
  • Citizens want their governments to put jobs in their countries first, and to implement policies that increase incomes at the bottom of the pyramid rather than facilitating only further growth at the top.

India’s challenges

  • The country must improve on many fronts simultaneously. 
  • India ranks very low in international comparisons of human development (education and health), even below its poorer subcontinental neighbors.
  • It is the most water-stressed large economy in the world; its cities are the most polluted. 
  • India’s economic growth is not generating enough jobs for its burgeoning population of youth: the employment elasticity of India’s growth is amongst the worst in the world. 
  • Unemployment of persons with vocational education has gone up between 2011-12 and 2017-18, from 18.5% to 33%. India now has a larger number of frustrated youth.

More free trade, not the answer

  • The RCEP decision shows that India is now standing up to pressure from a rump of Washington Consensus economists who advocate that more free trade is the solution to India’s economic problems, despite the evidence that India has not benefited from the agreements it has entered into.
  • India’s challenge is to build an Indian ecosystem in which competitive enterprises will grow to create more opportunities for jobs for youth and for increasing citizens’ incomes. 
  • The growth of incomes in India will make India more attractive to investors. A stronger industrial system will give India more headroom in trade negotiations too. 
  • India’s industrial and entrepreneurial ecosystem’s growth must be accompanied by an improvement in the environment. 
  • Policies must be managed with a whole systems view. While ‘Ease of Doing Business’ gauges health from a business perspective, ‘ease of living’ should become the measure of the health of the whole system.


  • Policy decisions require compromises between competing interests.
  • Mahatma Gandhi’s talisman provides a good test. The government should think of the needs of the poorest citizens first.
  • A citizen’s fundamental need is for a good job and source of income to buy imported goods. 
  • India urgently requires an employment and income strategy to guide its industry and trade policies.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Explained: Is India facing stagflation?Explained


From UPSC perspective, the following things are important :

Prelims level : Various keywords mentioned

Mains level : Signs of economic slowdown in the country

With fast decelerating economic growth and sharply rising inflation, there is a growing rumor about India facing stagflation.

What is Stagflation?

  • Stagflation is a portmanteau of stagnant growth and rising inflation. The term was coined by Iain Macleod, a Conservative Party MP in UK, who while speaking on the UK economy in the House of Commons in November 1965.
  • Typically, inflation rises when the economy is growing fast. That’s because people are earning more and more money and are capable of paying higher prices for the same quantity of goods.
  • When the economy stalls, inflation tends to dip as well – again because there is less money now chasing the same quantity of goods.

When does stagflation occur?

  • Stagflation is said to happen when an economy faces stagnant growth as well as persistently high inflation.
  • That’s because with stalled economic growth, unemployment tends to rise and existing incomes do not rise fast enough and yet, people have to contend with rising inflation.
  • So people find themselves pressurized from both sides as their purchasing power is reduced.

Why is everyone asking about Stagflation in India?

  • Over the past six quarters, economic growth in India has decelerated with every quarter. In the second quarter (July to September), for which the latest data is available, the GDP grew by just 4.5%.
  • In the coming quarter (October to December), too, GDP growth is likely to stay at roughly the same level. For the full financial year, the GDP growth rate is expected to average around 5% – a six-year low.
  • In fact, the October inflation was a 16-month high and the November inflation, at 5.54%, is at a three-year high. Inflation for the rest of the financial year is expected to stay above the RBI’s comfort level of 4%.
  • So, with growth decelerating every quarter and now inflation rising up every month, there are growing murmurs of stagflation.

So, is India facing Stagflation?

Although it appears so at the first glance, India is not yet facing stagflation. There are three broad reasons for it:

GDP hasn’t declined

  • Although it is true that we are not growing as fast as we have in the past or as fast as we could, India is still growing at 5% and is expected to grow faster in the coming years.
  • India’s growth hasn’t yet stalled and declined; in other words, year on year, our GDP has grown in absolute number, not declined.

Food Inflation is predictable

  • It is true that retail inflation has been quite high in the past few months, yet the reason for this spike is temporary because it has been caused by a spurt in agricultural commodities after some unseasonal rains.
  • With better food management, food inflation is expected to come down.

Retail inflation is under control

  • Lastly, retail inflation has been well within the RBI’s target level of 4% for most of the year.
  • The core inflation – that is inflation without taking into account food and fuel – is still benign.
  • A sudden spike of a few months, which is likely to flatten out in the next few months, it is still early days before one claims that India has stagflation.


Types of Inflation

  • Creeping or mild inflation is when prices rise 3% a year or less.
  • Walking inflation is strong, or pernicious, inflation between 3-10% a year.
  • Galloping inflation occurs when inflation rises to 10% or more.
  • Hyperinflation is when prices skyrocket more than 50% a month.
  • Deflation occurs when there is a general fall in the level of prices
  • Disinflation is the reduction of the rate of inflation
  • Stagflation is a combination of inflation and rising unemployment due to recession
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[op-ed snap] Twin troubles: On low growth and high inflationop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Stagflation

Mains level : Economic slowdown


Economic data released by the government suggest that India may be stepping even closer to stagflation. 


  • IIP – The Index of Industrial Production (IIP) contracted 3.8% in October against a rate of 8.4% witnessed during the same month last year. 
  • Inflation – Retail inflation jumped to a 40-month high of 5.5% in November. This is fuelled by a sharp jump in food prices. It might drop as fresh food supplies hit the market. 
  • Stagflation – Low growth combined with high price inflation is sure to cause headaches for policymakers. 
  • Growth – Economic growth has declined for six consecutive quarters now. This is one of the longest downturns in recent history. 


  • RBI’s limitation – Due to inflation raising its ugly head, the RBI is unlikely to cut rates aggressively in the next few months at least. 
  • More on Fiscal policy – it is entirely up to the government now to find ways to boost growth. The government cannot delay reforms.

Government’s inaction

  • Blaming Monetary policy – The government maintained that the country’s growth rate was held back by the tight monetary policy stance adopted by the RBI. 
  • Repo rate cut – as the benchmark interest rate was cut five times so far this year, the government can no longer shift the blame on to the RBI. 
  • Cyclical slowdown – the government is now blaming that the slowdown in growth is merely a cyclical one that will end sooner than later. 
  • Lack of reforms – the Centre has failed in bringing about major structural reforms to the economy. But for the recent cut in corporate tax rates, the government has not come up with any other significant reform in response to the slowdown. 

The root cause of the slowdown

  • Low growth along with high inflation raises questions about the root cause of the slowdown. 
  • Demand shortfall? It has been attributed to a drastic fall in consumer demand. 
  • Rate cuts didn’t help – Aggressive rate cuts by the RBI cannot stop the continuous slide in growth rate.
  • Supply-side is also in deep trouble. 

Way ahead

  • Economic reforms can lift the potential growth rate of the economy. 
  • Further rate cuts by the RBI will only add to the government’s troubles by stoking inflation in the wider economy.



Economics | Inflation explained with real life examples

Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[pib] National Economic CensusDOMR


From UPSC perspective, the following things are important :

Prelims level : National Economic Census

Mains level : Economic planning in India

The Seventh Economic Census was launched in the National Capital Territory of Delhi. Delhi is the 26th state where the survey has been launched, while the process is already on in 20 states and 5 UTs.

National Economic Census

  • In 1976, GoI launched a planning scheme called Economic Census and Surveys.
  • It is the census of the Indian economy through counting all entrepreneurial units in the country which involved in any economic activities of either agricultural or non-agricultural sector which are engaged in production and/or distribution of goods and/or services not for the sole purpose of own consumption.
  • It provides detailed information on operational and other characteristics such as number of establishments, number of persons employed, source of finance, type of ownership etc.
  • This information used for micro level/ decentralized planning and to assess contribution of various sectors of the economy in the GDP.

Censuses till date

  • Total Six Economic Censuses (EC) has been conducted till date.
  • In 1977 CSO conducted First economic census in collaboration with the Directorate of Economics & Statistics (DES) in the States/UTs.
  • The Second EC was carried out in 1980 followed by the Third EC in 1990. The fourth edition took place in 1998 while the fifth EC was held in 2005.
  • The Sixth edition of Economic Census was conducted in 2013.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Volcker’s RulePriority 1


From UPSC perspective, the following things are important :

Prelims level : Volcker's Rule

Mains level : Inflation control measures

Paul Volcker passed away on December 8. He was the economist who helped shape US economic policy during the period of “The Great Inflation” that lasted for roughly two decades starting in the mid-1960s.

 “The Great Inflation”

  • The Great Inflation of 1965-82 was one of the defining macroeconomic events in the US history.
  • It was marked by the abandonment of the global monetary system used during World War II, multiple economic recessions, and wage and price controls.
  • Inflation in the US rose from below 2 percent in 1962 to above 15 percent by 1979.
  • Paul Volcker was appointed Chairman of the Board of Governors of the United States Federal Reserve System on August 6, 1979, and given a second term in 1983.

Volcker’s Rule

  • The Volcker Rule generally prohibits banks from conducting certain investment activities with their own accounts and limits their dealings with hedge funds and private equity funds, also called covered funds.
  • In easy terms it prohibits banks from using customer deposits for their own profit.
  • They can’t own, invest in, or sponsor hedge funds, private equity funds, or other trading operations for their use.
  • It aims to protect bank customers by preventing banks from making certain types of speculative investments.
  • The Volcker Rule allows trading in two circumstances. First, banks can trade when it’s necessary to run their business. For example, they can engage in currency trading to offset their foreign currency holdings.
  • Second, banks can trade on behalf of their customers. They can use client funds only with the client’s approval.

The idea unique

  • What Volcker did differently was to emphasis a tighter control on reserves and bring in credit control policies at a time when it was generally accepted that controlling inflation required greater control over the growth rate of reserves and broad money.
  • Even so, despite these measures, the US economy entered a phase of recession in 1981 and unemployment rose to about 11 percent, but inflation was coming down.
  • By the end of 1982, the economy entered “a period of sustained growth and stability”.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Explained: Significance of computing GDPExplained


From UPSC perspective, the following things are important :

Prelims level : GDP, GNP

Mains level : National income accounting

  • With the upsetting news of a secular decline in India’s GDP growth rate, the government has offered several arguments to either say the picture is not as bleak as it is being made out to be.
  • This has questioned the merit of the basic variable, GDP used to map economic growth.

What is GDP?

  • GDP measures the monetary value of all goods and services produced within the domestic boundaries of a country within a timeframe (generally, a year).
  • It is slightly different from the other commonly used statistic for national income — the GNP.
  • The Gross National Product (GNP) measures the monetary value of all goods and services by the people and companies of a country regardless of where this value was created.
  • For example, if Apple manufactures its mobile phone worth $1 million within India, then this $1 million will be counted in India’s GDP and US’ GNP.
  • On the other hand, if the US office of Infosys created software worth $1 million, then it will be counted in US’ GDP and India’s GNP. It is the domestic boundary that distinguishes the GDP.

Its creation

  • The modern-day definitions of GDP and GNP can indeed be traced back to Simon Kuznets, who was entrusted with the task of creating National Accounts in 1933 by then US President Franklin D Roosevelt.
  • Kuznets’ team travelled the length and breadth of the USA asking farmers and factory managers what and how much they had produced and what they had purchased in order to make their final product.
  • The final report, National Income, 1929-32, was presented to the US Congress in January 1934.
  • However, the origins of GDP as a concept date far back. Indeed, the man credited with inventing the concept is William Petty (1623-1687), an Englishman who was a professor of anatomy at Brasenose College.
  • Petty’s quest started when he received an estate in Ireland. To figure out how much did it value, Petty attempted to account for the benefits from the estate and find an appropriate “present value” of the estate.
  • Later on, he applied his approach to the whole of England and Wales to provide the first set of national accounts for the two countries.

Was Kuznets completely satisfied with GDP as a measure?

  • But, again, one has to understand that no measure can accurately summarize the welfare or wellbeing of an entire population.
  • Kuznets was striving for a measure that would reflect welfare rather than what he considered a crude summation of all activities.
  • All measures suffer from some weaknesses. For instance, annual GDP of India is $2.8 trillion but that does not mean that an average Indian is better off than say the average New Zealander ($0.18 trillion).
  • An average Kiwi is 19-times richer than an average Indian even though India’s annual GDP is 15-times than of NZ’s.

So, what is the point of GDP?

  • Yet, GDP is a variable of great merit. That’s because as a measure, it most sums up more information about an economy than any other variable.
  • For instance, countries with higher GDPs have citizens with higher incomes and better standards of living.
  • Of course, one can point out variations and suggest that a country ranked 1 in GDP is ranked 9 in GDP per capita but these divergences would be relatively small when data is seen at a global level.
  • Similarly, countries with higher GDP can be expected to have much better health and education metrics.
  • The so-called richer countries would have better institutions devoted to higher education, research and development etc primarily because they have the money to spare.
  • As such, while it helps not to depend overly on just the GDP of a country to make up one’s mind, it is also not a good idea to disregard it as a measure.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[oped of the day] Why India is staring at a middle-income trapop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Nothing much

Mains level : Middle Income Trap - role of institutions to tackle


For India, there are few things more important than our challenge of becoming a rich country.


    • From experience, we know that the only way out of mass poverty is to obtain modest rates of growth of per capita GDP sustained for many decades. 
    • If per capita GDP grows at 4% per year, there is a doubling every 18 years. Per capita GDP would then go up by 8 times in 50 years.
    • That graduates us beyond middle income.

Idea of development

    • The early idea about economic development viewed an underdeveloped country as a child. 
    • Growth was inevitable. It was only a matter of putting in a few actions to enable that process. 
    • This leads to the risk of thinking that progress is inevitable.
    • Now we know that there is no inevitability about the rise of a country to be a prosperous democracy. 
    • There are only four countries that were poor in 1945 that are now prosperous democracies: South Korea, Taiwan, Chile, and Israel. 
    • In all those countries, growth came as a result of improvements in state capability.

State capability

    • A prominent measure of state capability is available for the 1996–2012 period. 
    • By this, the state capability in India declined in this period. 
    • Our institutional capacity got worse in a period of strong GDP growth. 
    • It is wrong to equate GDP growth with improvement in the foundations for GDP growth.

Higher GDP growth – reduced state capacity

    • When bigger rupee values are at stake, private persons gain by undermining state institutions.
    • We saw this in India in the period after 2005 when the country was starting to reap remarkable success by private sector firms. 
    • The prospective gains from subverting state institutions were suddenly larger and we got bigger investments into attacks on institutions. 
    • State apparatus that used to work when million-rupee bribes were offered broke down when the offers went to billions of rupees.


    • Perhaps India’s growth of 1979–2011 was not adequately grounded in the required institutional capacity to be a prosperous liberal democracy.
    • This has something to do with the difficulties that have been seen after 2011.
    • The growth model of 1991–2011 has not carried forward into the following years. 
    • Private “under implementation” investment projects rose from ₹10 trillion in 2006 to ₹50 trillion in 2011. 
    • After that, there has been a decline in nominal terms to ₹40 trillion in mid-2019. 
    • The share of non-workers in the working-age population stands at 60.43% in April–June 2019.

Middle-income trap

    • In many other countries, the phenomenon of a “middle-income trap” has been observed. 
    • At the early stages of development, the simple mobilization of labour and capital is enough to escape from abject poverty. 
    • But once the minimal market economy is in place, a different level of institutional quality is required. 
    • The maturation of firms and the government creates the need for complex contracts, contract enforcement, economic regulation, and institutions that channel the conflicts between social groups.
    • When a middle-income country wants to rise to a mature market economy, and institutional capacity is weak growth stalls. 

Reasons for underperformance

    • A lot of government intervention and the license-permit-inspector raj remains in place. 
    • The economic freedom promised in 1991 has not evolved into a mature market economy. 
    • Private persons are beset with government intervention. 
    • The instincts of central planning are alive and well among policymakers. 
    • There is a great deal of arbitrary power in the hands of the government. 
    • Extensive interference in the economy by the government still exists.
    • There is a policy risk associated with future interventions. The fear of how arbitrary power will be used has led to a loss of confidence in the private sector.

State capacity deficit

    • When India was a small economy, the GDP was small, and the gains from violating rules were also relatively small. 
    • The tenfold growth in the size of the economy created new opportunities to obtain wealth. 
    • The gains from violating rules went up sharply. Large resources were brought to bear upon subverting state institutions.
    • The foundations of state institutions in terms of the rule of law, and checks and balances were always weak. 
    • The combination of an amplified effort by private persons to subvert institutions, coupled with low state capacity, has resulted in a decline of institutional quality.

Addressing the problems

    • Economic thinkers of the previous decades tended to focus on economics more narrowly, on issues such as the green revolution or heavy industry or trade liberalization.
    • We need to more explicitly locate ourselves in the intersection of politics and the economy. 
    • The founding energy of liberal democracy is the pursuit of freedom, of people being masters of their own fate. 
    • We need to shift away from notions of a developmental state with big initiatives from the government, towards a philosophy of respect for the self-organizing system. 
    • We need to rely far more on private negotiations, private contracts, and civil society solutions, rather than turning to the government to solve problems.
    • APMCs (agricultural produce market committees) were not intended to create entrenched power in the hands of traders. Land ceiling Acts were not intended to create shortages of real estate and high prices for real estate. Bank nationalization was not intended to hamper growth, stability, and inclusion.
    • Single-window systems do not solve the problem of state coercion, and the threat of raids and punishments.
    • In the absence of deeper reform, it is hard to build single-window systems that overcome a maze of restrictions. 

Deeper reforms

    • The reform required in the early 1990s was not a single-window system governing IPO approvals, it was the abolition of the office of the Controller of Capital Issues. The reform required in trade liberalization was not a single-window system for import approvals, it was the removal of trade barriers. 
    • Some of the work of regulation can be pushed down to private firms. To tackle the problem of regulating taxis, one possibility lies in setting up bureaucratic machinery that engages with each taxi driver. Another pathway lies in contracting out this regulation to private taxi companies. 
    • Aggregation business models, such as Airbnb, have an incentive to utilize customer feedback and supervisory staff to improve the quality of their customer experience. 
    • Modern technology makes it possible to remove the market failure. 
    • In allocating spectrum, the state creates bureaucratic machinery which auctions spectrum and polices for violations. There is an alternative methodology where intelligent devices establish a self-organizing system through which the spectrum is shared. The need for government control of spectrum allocation is removed. 
    • Nobel Prize-winning economist Elinor Ostrom reminds us of the remarkable outcomes through some traditional community arrangements. The possibilities for purely decentralized solutions to allocate common goods without requiring a bureaucratic apparatus are high.
    • A complex modern economy only works when it is a self-organizing system. It has to have the creative efforts of a large number of individuals.


It is always possible to obtain GDP growth without solving these deeper problems. We should shift focus from the numbers for GDP growth to focusing on the state of health of state institutions. Sustained improvement in institutional quality is hard, but it is the only way to obtain sustained GDP growth.

Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[oped of the day] Politics should not meddle with our official statisticsop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Nothing much

Mains level : Government statistics - reliability


The National Statistical Office is making headlines over the non-release of the results of the 75th round (2017-2018) of the National Sample Survey (NSS). 


    • It is said that the report revealed a decline in average monthly per capita consumer expenditure (MPCE) in real terms compared to 2011-12.
    • The government indicated that it is examining the feasibility of conducting the next survey in 2020-2021 and 2021-22.

Issues with official statistics

    • T.N. Srinivasan and others refer to these as India’s downfall “from being the world leader in surveys” to a country “with a serious data problem”. 
    • S.L. Shetty pointed out that India’s “official statistical collection machinery has been in decline for more than two decades”. 
    • Our governments have repeatedly interfered with various official statistics.

Statistics – India

    • Poverty reduction has been integral to independent India. The NSSs are the primary means to track household consumer expenditure and poverty. 
    • Led by P.C. Mahalanobis initially, several economists and statisticians contributed to the design and development of the NSS. 
    • American statistician Harold Hotelling has remarked, “No technique of random sample has, so far as I can find, been developed in the United States or elsewhere, which can compare in accuracy with that described by professor Mahalanobis.”

History of distortion

    • Beginning with the 1970s, political interference began to corrode trust in government statistics.
    • In 1973, B.S. Minhas resigned from the Planning Commission over differences on the misuse of data to present a rosy picture of the economy.
    • The 55th round (1999-2000) of the NSS stirred a controversy over the lack of inter-temporal comparability of its MPCE estimates.
    • Angus Deaton and Valerie Kozel pointed out that “the political right had an interest in showing low poverty, and the political left in showing high poverty, and this undoubtedly intensified the debate on survey design and led to the unfortunate compromise design that temporarily undermined the poverty monitoring system”.
    • The 66th round of the NSS (2009-10) showed that employment generation fell significantly short of the target of the 11th Five Year Plan. 
    • The government also delayed the fourth round of the National Family Health Survey, which was eventually held after the 2014 polls. 
    • The government delayed the release of the results of the 2017 Periodic Labour Force Survey that contested its employment claims. Two members of the National Statistical Commission resigned in protest. 
    • Unlike the 27th and 66th round when the results were released but superseded by fresh surveys, the Centre decided not to release the results of the 75th round of NSS.

Impact of politicisation

    • Several surveys and committees have seen their reports either delayed or trashed.
    • Revisions have eroded trust in national accounts. 
    • The government also delayed the release of several tables of the 2011 Census, which should have been made public.

Way ahead

    • Statistical institutions should be insulated from political interference.
    • The government’s contention that the NSSs are unable to capture changing patterns of consumption is not entirely untrue.
    • This calls for a way to shield statistical bodies from politics.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[pib] Household Consumer Expenditure SurveyPIB


From UPSC perspective, the following things are important :

Prelims level : Household Consumer Expenditure Survey

Mains level : Signs of economic slowdown in the country

Govt has scrapped this year’s NSOs Consumer expenditure survey over data quality.

Consumer Expenditure Survey

  • The Consumer Expenditure Survey (CES) is usually conducted at quinquennial intervals and the last survey on consumer expenditure was conducted in the 68th round (July 2011 to June 2012).
  • It is conducted by National Statistical Office (NSO), MoSPI.
  • It generates estimates of household Monthly Per Capita Consumer Expenditure (MPCE) and the distribution of households and persons over the MPCE classes.
  • It is designed to collect information regarding expenditure on consumption of goods and services (food and non-food) consumed by households.
  • The results, after release, are also used for rebasing of the GDP and other macro-economic indicators.

Highlights of the 2018-19 survey

  • Consumer spending is falling and the report has been withheld due to its ‘adverse’ findings.
  • There was a significant increase in the divergence in not only the levels in the consumption pattern but also the direction of the change when compared to the other administrative data sources like the actual production of goods and services.

Why is the survey not published?

  • In view of the data quality issues, the Ministry has decided not to release the Consumer Expenditure Survey results of 2017-2018.
  • Concerns were raised about the ability/sensitivity of the survey instrument to capture consumption of social services by households especially on health and education.
  • The Advisory Committee on National Accounts Statistics has also separately recommended that for rebasing of the GDP series, 2017-18 is not an appropriate year to be used as the new base year.
  • The MoSPI is separately examining the feasibility of conducting the next Consumer Expenditure Survey in 2020-2021 and 2021-22 after incorporating all data quality refinements in the survey process.

Data leaked

  • The survey allegedly showed that the average amount spent by an Indian in a month fell 3.7% to Rs 1,446 in 2017-18 from Rs 1,501 in 2011-12.
  • While consumer spending declined 8.8% in 2017-18 in India’s villages, it rose 2% over six years in cities, it said.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[op-ed snap] Never the twain shall meet: Why gap between WPI and CPI based inflation wideningop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Inflation

Mains level : Inflation - CPI, WPI divergence


The retail inflation as measured by the Consumer Price Index touched a 16 month high at 4.62%. The wholesale price inflation measured by the Wholesale Price Index is on the verge of entering the negative territory. The gap between the two is currently the widest in two years.


  • In October, wholesale price inflation dropped to 0.16%. 
  • Most analysts expect WPI inflation to decline further in the coming months, weighed by a base effect.


  • Wholesale price deflation signals that producers lack pricing power and maybe offering discounts at a time consumer expenditure has dropped to an 18 quarter low in the April-June period. 
  • Automakers offered heavy discounts during the festive season to break the trend of falling sales. 
  • Factory output data for September also showed that the production of both consumer durables and consumer non-durables contracted during the month. Overall output shrank to its lowest level at least in seven years.

Reasons for high CPI

  • CPI and WPI are two different sets of indicators with varied compositions. 
  • Manufactured items have the highest weight of 64.23% in WPI, while fuel and primary articles have 13.15% and 22.62% weight, respectively. 
  • Food and beverages have the highest weight of 54.18% in CPI. Services sectors such as health, education, and amusement have a combined weight of 27.26%. 
  • So the supply shortage of onions and tomatoes due to floods and unseasonal rains has a disproportionate impact on the overall retail inflation than wholesale price inflation. 
  • A spike in crude oil prices or a rise in other commodity prices would drive WPI based inflation up faster than the CPI-based inflation. 

CPI – Food inflation

  • Retail food inflation often mimics wholesale food inflation as the price rises are first reflected in the wholesale market than in the retail market.
  • In October, retail food inflation quickened to 7.89% following similar print in wholesale price inflation in September at 7.47%.

It led to…

  • The WPI based inflation has lost the primacy that it once enjoyed in economic policy debates when RBI signed the monetary framework pact with the Centre in 2015. 
  • Now, the RBI is mandated to only achieve the medium-term target for CPI inflation of 4% within a band of two percentage points.


Inflation in India: CPI, WPI, GDP Deflator, Inflation Rate

Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[op-ed snap] A deeper darkop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Nothing much

Mains level : Moody's downgrade


Data from the National Statistics Office showed that industrial production contracted by 4.3% in September — the lowest in the current series.

IIP movement

    • Over the course of the entire second quarter, the IIP has contracted by 0.4% after growing by 3% in the previous quarter. 
    • Of the 23 sub-sectors within manufacturing, 17 contracted in September.
    • This suggests that the contraction is deeper and more widespread. 
    • The worsening performance of the consumer durables, as well as the non-durables segment, is indicative of subdued household demand.
    • The capital goods segment contracted by 16.8% in the second quarter, indicating that investment activity continues to be depressed.

What it signifies

    • Data from the Controller General of Accounts shows that government spending picked up pace significantly after the Union budget was presented.
    • This wouldn’t have been enough to offset the subdued performance of other sectors. 
    • Various high-frequency indicators suggested that economic activity has slowed down considerably over the past few months. Growth may come in the 5% mark in the quarter. 
    • Even the government spending will not be available due to pressure on its own finances.
    • Transfers from the RBI can only partially offset the shortfall in both direct and indirect tax collections.
    • Even the disinvestment receipts remain well below the budgeted target.
    • Cuts in government spending are likely going forward, thus further accentuating the slowdown. 


    • Reflecting this deteriorating economic situation, Moody’s changed its outlook on India’s rating from stable to negative.
    • They cited increased risks that the country’s economic growth will remain “materially lower than in the past.”

Way ahead

    • Towards the end of this year, the headline growth numbers may pick up once the base effect kicks in. 
    • It would be a mistake to construe this as a sign of a recovery. 
    • The government needs to address multiple issues plaguing the economy. Along with measures to boost long-term potential growth, comprehensive measures are needed to address the stress in specific sectors such as telecom, real estate, and the financial system.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Base Year in GDP CalculationsPriority 1


From UPSC perspective, the following things are important :

Prelims level : Base Year

Mains level : National income accounting

At a time when India is facing an economic slowdown in GDP growth the Ministry of Statistics and Programme Implementation announced that the new base year for the GDP series will be decided in a few months.

What is Base Year?

  • The base year of the national accounts is chosen to enable inter-year comparisons.
  • It gives an idea about changes in purchasing power and allows calculation of inflation-adjusted growth estimates.
  • The last series has changed the base to 2011-12 from 2004-05.
  • The base year is a benchmark with reference to which the national account figures such as gross domestic product (GDP), gross domestic saving, gross capital formation are calculated.

How is a base year calculated?

  • In India, the first estimates of national income were published by the Central Statistical Organisation (CSO) in 1956 taking 1948-49 as the base year.
  • With the gradual improvement in availability of data, the methodology was revised.
  • Earlier, CSO depended on the population figures in the National Census to estimate the workforce in the economy.
  • Therefore, the base year always coincided with the census figures like 1970-71, 1980-81 etc.
  • Subsequently, CSO decided that the National Sample Survey (NSS) figures on the workforce size were more accurate and hence, the base year would change every five years when the NSS conducted such survey.
  • This system was started from 1999 when the base year was revised from 1980-81 to 1993-94.

Why need it?

  • The base year prices are termed as at constant prices. This reduces all the data to a comparable benchmark, base year price.
  • The base year is a representative year which must not experience any abnormal incidents such as droughts, floods, earthquakes etc.
  • It is a which is reasonably proximate to the year for which the national accounts statistics are being calculated.

Why is the base year changed every few years?

  • The base year has to be revised periodically in order to reflect the structural changes taking place within an economy, such as increasing share of services in GDP.
  • The more frequently the base year can be updated, the more accurate the statistics will be.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Global Wealth Report 2019IOCR


From UPSC perspective, the following things are important :

Prelims level : Global Wealth Report 2019

Mains level : Income inequality in India

  • The Credit Suisse Group, a Switzerland-based multinational investment bank, has released the 10th edition of its annual Global Wealth Report.

Global Wealth Report 2019

  • The report typically tracks both the growth and distribution of wealth – in terms of the numbers of millionaires and billionaires.
  • It tracks the proportion of wealth that they hold – as well as the status of inequality around the world.

How is wealth defined?

  • Wealth is defined in terms of “net worth” of an individual.
  • This, in turn, is calculated by adding up the value of financial assets (such as money) and real assets (such as houses) and then subtracting any debts an individual may have.

What are the drivers of the wealth of nations?

1) Size of the population

  • Several factors can explain why wealth per adult follows a different path in different countries.
  • For instance, the overall size of the population is one possible factor that drives wealth per adult in the country. For a country with a huge population, in terms of final calculation, this factor reduces the wealth per adult.
  • But there is a flip side as well. A big population also provides a huge domestic market and this creates more opportunities for economic growth and wealth creation.

2) Saving behaviour

  • Another important factor is the country’s saving behaviour. A higher savings rate translates into higher wealth. The two variables share a strong positive relationship.
  • Overall, a percentage point rise in the savings rate raises the growth rate of wealth per adult by 0.13% each year on average.
  • Thus, for example, household wealth in Poland (with an 18% savings rate) would be expected to be 27% higher in mid-2019 if it had matched the savings rate of Sweden (28%),” states the Credit Suisse report.

3) Level of economic activity

  • But by far the most important factor in determining the different trends in household wealth among countries is the general level of economic activity as represented by aggregate income, aggregate consumption or GDP.
  • That’s because the expansion of economic activity increases savings and investment by households and businesses, and raises the value of household-owned assets, both financial and non-financial.
  • But wealth and GDP do not always move in tandem, cautions the report. This is especially so when asset prices fluctuate markedly as they did during the financial crisis.

Key findings of the report

  • A key finding of 2019’s report is that China has overtaken the US this year to become “the country with most people in the top 10% of global wealth distribution.
  • As things stand, just 47 million people – accounting for merely 0.9% of the world’s adult population – owned $158.3 trillion, which is almost 44% of the world’s total wealth.
  • At the other end of the spectrum are 2.88 billion people – accounting for almost 57% of the world’s adult population – who owned just $6.3 trillion or 1.8% of the world’s wealth.
  • The other way to look at this distribution of wealth is from the prism of inequality.
  • The bottom half of wealth holders collectively accounted for less than 1% of total global wealth in mid-2019, while the richest 10% own 82% of global wealth and the top 1% alone own 45%,” states the report.

Indian case

  • Total wealth in India increased fourfold between 2000 and 2019, reaching $12.6 trillion in 2019, making India the fifth globally in terms of the number of ultra-high net-worth individuals, as per the report.
  • India has 8.27 lakh adults in the top 1% of global wealth holders – 1.6% share of the global pool .
  • It is estimated that India has 4,460 adults with wealth of over $50 million and 1,790 that have more than $100 million.
  • However, the study also found that while the number of wealthy people in India has been on the rise, a larger section of the population has still not been part of the growth in overall wealth.

Inequality persists

  • While wealth has been rising in India, not everyone has shared in this growth.
  • There is still considerable wealth poverty, reflected in the fact that 78% of the adult population has wealth below $10,000,” stated the report.
  • While highlighting the fact that a small fraction of the population — 1.8% of adults — has a net worth of more than $100,000.
  • Meanwhile, as per the financial major, India is expected to grow its wealth very rapidly and add $4.4 trillion in just five years, reflecting an increase of 43%.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

World Economic Outlook, 2019IOCR


From UPSC perspective, the following things are important :

Prelims level : WEO report

Mains level : Economic slowdown in India

  • In the gloomy global economic picture painted by the IMF, India retains its rank as the world’s fastest-growing major economy, tying with China.

Growth projections for India

  • IMF has projected growth rate of 6.1 per cent for the current fiscal year, despite an almost one per cent cut in the forecast.
  • The report projected India’s economy to pick up and grow by 7 per cent in the 2020 fiscal year.
  • The world economy is projected to grow only 3 per cent this year and 3.4 per cent next year amid a “synchronised slowdown”.
  • IMF’s projected growth rate of 6.1 per cent for 2019-20 is consistent with the Indian Monetary Policy Committee’s forecast.

Mapping the slowdown

  • India’s economy decelerated due to sector-specific weaknesses in the automobile sector and real estate as well as lingering uncertainty about the health of non-bank financial companies.
  • It added that corporate and environmental regulatory uncertainty was other factor that weighed on demand.
  • The global slowdown is due to rising trade barriers, uncertainty surrounding trade and geopolitics, and structural factors, such as low productivity growth and an aging population in developed countries.

Suggestions for India

  • The IMF suggested that India should use monetary policy and broad-based structural reforms to address cyclical weakness and strengthen confidence.
  • A credible fiscal consolidation path is needed to bring down India’s elevated public debt over the medium term.
  • This should be supported by subsidy-spending rationalization and tax-base enhancing measures, said the report.
  • Other measures it suggested included reducing the public sector’s role in the financial system, reforming the hiring and dismissal regulations that would help incentivise job creation and absorb the country’s large demographic dividend”, and land reforms to expedite infrastructure development.

Crisis looming on Auto Sector

  • The auto sector is one of the areas seriously affected globally.
  • Global car sales fell by three per cent last year, while the number of automobile units manufactured declined by 1.7 per cent, in value terms it fell by 2.4 per cent.
  • The number of auto units produced by China fell by four per cent, its first decline in more than two decades, according to the WEO.
  • It said the two main reasons for the decline of the auto sector were the removal of tax breaks in China and the rollout of new carbon emission tests in Europe.
  • The auto industry had a large global footprint and vehicles and related parts are the world’s fifth largest export product, accounting for about 8 percent of global goods exports in 2018.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Global Competitiveness Index 2019IOCR


From UPSC perspective, the following things are important :

Prelims level : GCI

Mains level : Ease of doing business in India

  • The annual Global Competitiveness Index (GCI) compiled by Geneva-based World Economic Forum (WEF) is released.
  • Singapore has become the world’s most competitive economy in 2019, pushing the U.S. to the second place. Hong Kong SAR is ranked 3rd, Netherlands is 4th and Switzerland is ranked 5th.

About the GCI

  • The GCI was launched in 1979, maps the competitiveness landscape of 141 economies through 103 indicators organised into 12 pillars.

India ranked second for shareholder governance

  • India is ranked also high at 15th place in terms of corporate governance, while it is ranked second globally for shareholder governance.
  • In terms of the market size, India is ranked third, while it has got the same rank for renewable energy regulation.
  • Besides, India also punches above its development status when it comes to innovation, which is well ahead of most emerging economies and on par with several advanced economies.
  • India ranks high in terms of macroeconomic stability and market size, while its financial sector is relatively deep and stable despite the high delinquency rate, which contributes to weakening the soundness of its banking system.
  • This is largely due to improvements witnessed by several other economies.

India’s declining performance

  • India has moved down 10 places to rank 68th from 58th on an annual global competitiveness index.
  • WEF has flagged limited ICT (information, communications and technology) adoption, poor health conditions and low healthy life expectancy.
  • India is among the worst-performing BRICS nations along with Brazil (ranked even lower than India at 71st this year).
  • In the overall ranking, India is followed by some of its neighbours including Sri Lanka at 84th place, Bangladesh at 105th, Nepal at 108th and Pakistan at 110th place.


Low healthy life expectancy

  • The WEF said the healthy life expectancy, where India has been ranked 109th out of total the 141 countries surveyed for the index, is one of the shortest outside Africa and significantly below the South Asian average.

Improving skill base

  • Besides, India needs to grow its skills base, while its product market efficiency is undermined by a lack of trade openness.
  • The labour market is characterized by a lack of worker rights’ protections, insufficiently developed active labour market policies and critically low participation of women.
  • With a ratio of female workers to male workers of 0.26, India has been ranked very low at 128th place. India is also ranked low at 118th in terms of meritocracy and incentivisation and at 107th place for skills.

Asia-Pacific is most competitive region

  • The report showed that several economies with strong innovation capability like Korea, Japan and France, or increasing capability, like China, India and Brazil, must improve their talent base and their labour markets.
  • The presence of many competitive countries in Asia-Pacific makes this region the most competitive in the world, followed closely by Europe and North America.
  • China is ranked 28th (the highest ranked among the BRICS) while Vietnam is the most improved country in the region this year at 67th place.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[oped of the day] The quest for inclusive growth to combat inequalityop-ed snap


From UPSC perspective, the following things are important :

Prelims level : World Inequality Report

Mains level : Rising Inequalities

Op-ed of the day is the most important editorial of the day. This will cover a key issue that came in the news and for which students must pay attention. This will also take care of certain key issues students have to cover in respective GS papers.


According to the work of the World Inequality Lab, in the nearly 90 years between the Great Depression of 1929 and the year 2017, inequality in the US and UK first collapsed enormously and then exploded, ending up roughly where it started. 

Extent of Inequalities

  • In 1928, at the end of the Roaring Twenties, 22% of the US national income went to the richest 1%. 
  • Something very similar happened in the UK. The share of the top 1% fell steadily from 1920 to about 1979 and then went up, almost reaching the 1920 levels by 2017.
  • India has followed an even more extreme trajectory than the US since Independence. In the 1950s, the share of the top 1% in income was between 12% and 14%. That number dropped to 6% in the early 1980s and then began to climb, reaching 23% in 2017.

Not the same across all countries

  • The share of the top 1% in France, Germany, Switzerland, Sweden, the Netherlands, and Denmark was not too different from that in the US or UK in 1920. After 1920, inequality went down very sharply in all of these countries. 

What’s causing these differences

  • One view is that inequality is the cost we pay for fast growth. 
  • Countries track themselves in terms of GDP per capita despite radically different experiences with respect to inequality.
  • Across the world, the correlation between inequality and growth at the country level is negative. More unequal countries grow less fast. There is also no evidence that an increase in inequality is followed by increased growth.

Understanding Inequalities

  • There is very little support for the theory that we need to incentivize the rich so that the country grows. 
  • The sharp turnaround in inequality in the US and UK around 1980 coincides with Ronald Reagan in the US and Margaret Thatcher in the UK. They were true believers in the doctrine of incentives and pushed through a policy that combines large tax cuts for the rich with massive deregulation, and hostility towards the rights of workers. 
  • This did not happen in the rest of Western Europe, and it may be one important reason why they never saw the same explosion of inequality. 
  • Tax cuts and other giveaways to the rich do little to change their behavior.

Need for government regulation

  • It is clear that the regulations that we had in India before 1991 or China before 1979 can be debilitating. 
  • Governments do need to get out of the way of private businesses.
  • But there is a lot that can be done with a simple set of instruments
    • sensibly high taxes on high incomes and high wealth
    • vigilance against resource grabs (land, mines, water) by the rich
    • progressive carbon taxes
    • effective defense of workers’ rights by making job losses less painful

Income Inequalities

  • Income inequality is an enormous and complex challenge. 
  • The level of inequality today is the highest it has been in the last 100 years and has increased steadily over the last several decades.
  • The promise of equitable and inclusive economic growth has remained elusive.
  • Solving inequalities is not a matter of economics and policy alone, but also that of attitudes, empathy, and activism, both at the individual and societal level. 


This is not a problem that can be solved in three or five years. We must brace for this long quest with the consistent purpose for decades to come.



World Inequality Report by the World Inequality Lab at the Paris School of Economics provides estimates of global income and wealth inequality based on the most recent findings complied by the World Wealth and Income Database.

Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[op-ed snap] India’s economic mobility and its impact on inequalityop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Nothing much

Mains level : Economic inequality; Inclusive Growth issues


There has been a phenomenal rise in economic inequality in India. It is important to measure the extent of economic mobility in India, which reflects the number of people moving up and down the economic ladder over time. 


  1. A 2018 Oxfam study reports a significant increase in the consumption Gini index in both rural and urban areas from 1993-94 to 2011-12.
  2. According to the Global Wealth Report (GWR) 2017 by the Credit Suisse Research Institute, between 2002 and 2012, the share of the bottom 50% of the population in total wealth declined from 8.1% to only 4.2%. In the same period, the share of the top 1% of the total wealth increased from 15.7% to 25.7%.
  3. A recent survey pointed out that the mobility rate for the population is remarkably low. In 7 years, at least 7 in 10 poor households remain poor or remain in an insecure non-poor state.

Economic mobility

In a mobile economy, the households move more freely throughout the income/consumption distribution.

Importance of mobility

  1. Long-term welfare effects of rising inequality depend crucially on the level of economic mobility.
  2. Economic mobility or the lack of it can accentuate the adverse effects of inequality.
  3. An economy with much economic mobility will result in a more equal distribution of incomes and consumption than an economy with low mobility.

Dimensions of mobility

  1. Muslims are more vulnerable to falling below the poverty line over the seven-year period compared to Hindus or other religious groups.
  2. Compared to upper-caste groups and OBCs, SCs and STs are less likely to escape poverty and more likely to move into poverty.
  3. Between upper castes and OBCs, the latter is more likely to move into poverty and less likely to become secure non-poor.
  4. Rural households are more likely to remain in poverty compared to urban households.
  5. Inequality in India can be characterized as chronic since households belonging to the lower rungs of the economic ladder are likely to find themselves caught in a poverty trap.

Way ahead

  1. Poverty reduction efforts should focus on ways to improve the permanent economic status of households through the acquisition of assets and capabilities, rather than dealing with temporary volatility.
  2. There is also doubt on the efficacy of existing affirmative action and social programs to improve the economic status of marginalized groups in the country.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

India enters 37-year period of demographic dividendPriority 1


From UPSC perspective, the following things are important :

Prelims level : Demograhic Dividend

Mains level : Read the attached story

  • Since 2018, India’s working-age population (people between 15 and 64 years of age) has grown larger than the dependant population (defined as children aged 14 or below as well as people above 65 years of age).
  • This bulge in the working-age population is going to last till 2055, or 37 years from its beginning.

Why it matters?

  • In many ways, India’s demographics are the envy of the world.
  • As populations in countries such as China, US, and Japan is getting older, India’s population is getting younger.

What is demographic dividend?

  • Demographic dividend, as defined by the United Nations Population Fund (UNFPA) means the economic growth potential that can result from shifts in a population’s age structure.
  • This happens when the share of the working-age population (15 to 64) is larger than the non-working-age share of the population (14 and younger, and 65 and older).
  • In other words it is a boost in economic productivity that occurs when there are growing numbers of people in the workforce relative to the number of dependents.
  • It indicates that more people have the potential to be productive and contribute to growth of the economy for a longer period of time.

When this happens?

  • This transition happens largely because of a decrease in the total fertility rate (TFR, which is the number of births per woman) after the increase in life expectancy gets stabilized.

Global Examples


  • Japan was among the first major economies to experience rapid growth because of changing population structure.
  • The country’s demographic-dividend phase lasted from 1964 to 2004.
  • An analysis of the first 10 years since this phase shows how such a shift in the population structure can propel growth.
  • In five of these years, Japan grew in double digits; the growth rate was above 8% in two years, and a little less than 6% in one.


  • China entered this stage in 1994 — 16 years after Deng Xiaoping’s economic reforms started in December 1978.
  • Although its growth accelerated immediately after the reforms, the years of demographic dividend helped sustain this rate for a very long period.
  • In the 16 years between 1978 and 1994 (post-reform, pre-dividend) China saw eight years of double-digit growth.
  • In the 18 years since 1994 there have been only two years when China could not cross the 8% growth mark.

Indian Case

  • In near future India will be the largest individual contributor to the global demographic transition.
  • A 2011 IMF Working Paper found that substantial portion of the growth experienced by India since the 1980s is attributable to the country’s age structure and changing demographics.
  • By 2026 India’s average age would be 29 which is least among the global average.
  • The U.S. Census Bureau recently predicted that India will surpass China as the world’s largest country by 2025, with a large proportion of those in the working age category.
  • Over the next two decades the continuing demographic dividend in India could add about two percentage points per annum to India’s per capita GDP growth.

What next?

  • It is however important to note that this change in population structure alone cannot push growth. There are many other factors.
  • According to research by the RBI this will depend on India addressing its declining labour force participation rate.
  • The UNFPA states that countries can only harness the economic potential of the youth bulge if they are able to provide good health, quality education and decent employment to its entire population.

Harnessing a golden opportunity

  • India’s working-age population is now increasing because of rapidly declining birth and death rates.
  • India’s age dependency ratio, the ratio of dependents (children and the elderly) to the working-age population (14- to 65-year-olds), is expected to only start rising in 2040, as per UN estimates.
  • This presents a golden opportunity for economic growth that could be reaped through higher growth.

Way Forward

  • India needs to pay  special  attention  to  skilling  and  reskilling  its  workforce,  keeping  in  view  the  changing  nature  of  today’s  job
  • There are  serious  gaps  between  what  the  skill  development  institutions  currently  do  and what the industry requires.
  • Improving education and health infrastructure, in terms of both quality and access and  timely  action  in  a  co-ordinated  manner  by  the  Government,  private  sector  and  researchers  is  necessary  to  harness  the  window  of  opportunity  provided by a favourable demography.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Explained: Economic Survey 2019 — new ideas to policy prescriptionsExplainedPriority 1


From UPSC perspective, the following things are important :

Prelims level : Highlights of the Economic Survey

Mains level : Read the attached story

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.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[op-ed of the day] Not by wishful thinkingMains Onlyop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Nothing Much

Mains level : How to make India a 5 trillion Economy

Note- Op-ed of the day is the most important editorial of the day. Aspirants should try to cover at least this editorial on a daily basis to have command over most important issues in news. It will help in enhancing and enriching the content in mains answers. Please do not miss at any cost.


In early June, at a NITI Aayog meeting, Prime Minister Narendra Modi set a clear and bold economic target — to grow India into a $5 trillion economy by 2024. It is now for ‘Team India’, as the meeting was bannered, to translate this target into a plan and policies and programmes.

How realistic is this dream?

  • It is ₹350,00,000 crore of gross domestic product (GDP) at current prices, at ₹70 to a U.S. dollar exchange rate. India’s (provisional) GDP in 2018-19 at current prices is ₹190,10,164 crore (or $2.7 trillion), which means the annual per capita income is ₹1,42,719, or about ₹11,900 per month.
  • The target implies an output expansion by 84% in five years, or at 13% compound annual growth rate. Assuming an annual price rise of 4%, in line with the Reserve Bank of India’s inflation target, the required growth rate in real, or inflation-adjusted, terms is 9% per year.
  • To get a perspective, India officially grew at 7.1% per year over the last five years, but the annual growth rate never touched 9%. 

Comparison with Asian Countries

China – China, with a historically unprecedented growth record in its best five years, during 2003-07, grew at 11.7%;.

South Korea – South Korea, between 1983 and 1987, grew at 11%.

How to grow at such a fast pace

No country grew at such a pace without mobilising domestic saving and raising fixed investment rates.

1.Savings and investment rates required

  • In the last five years, on average, the domestic saving rate was 30.8% of gross national domestic income (GNDI), and the investment rate (gross capital formation to GDP ratio) was 32.5%.
  • Assuming the underlying technical coefficients remain constant, a 9% annual growth rate calls for 39% of domestic saving rate and 41.2% of investment rate.
  • Correspondingly, shares of private consumption need to shrink to about 50% of GDP from the current level of 59% of GDP at current prices, assuming foreign capital inflow remains at 1.7% of GDP.
  • In other words, India will have to turn into an investment-led economy as it happened during the boom last decade (2003-08) before the financial crisis, or like China since the 1980s.
  • Granting that rapid technical progress or changes in output composition could reduce the required incremental capital-output ratio (ICOR), it nevertheless will call for a nearly 8-9 percentage point boost to saving and investment rates.

The low domestic saving rate

History shows that no country has succeeded in accelerating its growth rate without raising the domestic saving rate to close to 40% of GDP.

FDI is not an alternative – Foreign capital can fill in some vital gaps but is not a substitute for domestic resources.

A decline in savings – The domestic saving rate has declined from 31.4% in 2013-14 to 29.6% in 2016-17; and gross capital formation rate from 33.8% to 30.6% during the same period.

NPA Crisis – The banking sector’s ability to boost credit growth is limited by non-performing assets (NPAs) and the governance crisis in the financial sector.

Baltic Dry Index indications –

  • Export to GDP ratio has declined rapidly, with a looming global trade war on the horizon, as has been indicated by the Baltic Dry Index.
  • The highly regarded leading indicator of global trade, currently trading at 1354 is forecasted to decline to less than 1,000 index points by the year-end (a decline from its historic high of 11,793 points in May 2008, just before the financial crisis set in).


Given the foregoing, the $5 trillion target appears daunting. It may yet be doable, provided policymakers begin with a realistic assessment, by willing to step up domestic saving and investment, and not by the wishful thinking of FDI-led growth accelerations in uncertain economic times.

Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[op-ed snap] The savings dilemma.Mains Onlyop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Nothing Much

Mains level : Decline in savings rates should be arrested as sson as possible.

Importance of savings

  • Empirical evidence shows that developing economies have a positive long-term correlation between savings and growth.
  • In a fast-growing economy like India, investments generally outpace domestic savings, and the gap gets funded by foreign savings.
  • This shows up as current account deficit.
  • Maintaining adequate domestic savings, therefore, is essential to sound macroeconomic management — more so in today’s challenging global environment.

Unfortunately, Indians have been saving less.

The decline in savings Rate

  • Worse, our rate of savings has fallen sharply.
  • The overall savings rate (households, public sector and private sector), or the proportion of gross domestic savings in the GDP, plunged to 30.5 per cent in fiscal 2018 from a peak of 36.8 per cent in fiscal 2008, rising marginally in the interim.
  • It has been downhill since fiscal 2012.
  • The external shock of the global financial crisis led to a sharp slowdown in public savings in fiscal 2009, with the government resorting to fiscal stimulus.
  • The savings rate recovered marginally in the next three years, only to lose momentum thereafter. This could compound India’s problem of slowing growth.

1. Decline in household savings

  • The largest savers in the economy, household savings, (the government and the corporate sector being the other two categories) fell from 23.1 per cent as a per cent of the GDP in fiscal 2010 to 17.2 per cent in fiscal 2018.
  • That’s a major source of concern because households have been traditionally net suppliers of funds to the private corporate sector as well as the public sector.
  • This means that excess of household sector savings over their investments is used to fund the saving-investment gap of the other two sectors.
  • A continuation of this trend will shrink the pool of savings available to facilitate private investments.

What explains the decline in household savings?

Increased Consumption –

  • A part of the answer lies in the consumption trend. National accounts data shows that over the past few years, private consumption as a percentage of the GDP has risen — in a reversal of the trend seen till the early 2000s.
  • Given favourable demographics, households are becoming consumption-centric, and their financial liabilities have been rising, as evidenced in retail credit, which, at 17 per cent annually, is the fastest-growing loans segment in the past five years.
  • This fall in household savings rate is also corroborated by a sharp fall in household saving elasticity (the proportional change in savings to a change in income) since the beginning of this decade.

    2.Government savings

On the other hand, savings of government corporations (departmental and non-departmental enterprises) are largely offset by government dis-saving (as it runs a revenue deficit), which keeps the overall public savings rate low.

3.Private sector Savings

  • But the private corporate sector savings bucked this trend, surging to 11.6 per cent of the GDP in fiscal 2018 from 7.4 per cent about a decade ago.
  • So while private corporate savings surged, household savings declined commensurately.
  • Yet, the rise in private corporate savings is in line with evolving global trends in savings after the global financial crisis.


Way Forward

  • In India too, rising corporate savings could be channelled for financing private corporate investment when the opportunity arises.
  • Beyond these domestic sources, an increase in private sector investment will need to be financed by foreign savings, which carries its own set of risks beyond a point.
  • With the election-related uncertainty behind us, a softer monetary policy stance, and the government’s resolve to push growth up, investments are likely to increase in the future.
  • Clearly, it’s time to reignite the virtuous cycle of high savings, investment, and growth so that the country returns to the high-growth trajectory of the past.
  • Pushing up household financial savings would require greater efforts towards financial inclusion, and possibly, incentives for saving.
  • These must be complemented by productivity-enhancing reforms that encourage private sector investments.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[op-ed snap] The middle income illusionMains Onlyop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Nothing Much

Mains level : Why middle income trap might only be a hypothesis and not a reality.


The World Bank has a definition of middle income. It is a range of per capita income between $996 and $12,055, with $996 to $3,895 defined as lower-middle income and $3,895 to $12,055 defined as upper-middle income (the thresholds are often changed, these are 2019 levels).

With a per capita income of around $2,000, India is still a lower-middle income country and $12,055 is a long way off.

The issue with the estimation

Numbers are based on nominal exchange rates

  • These numbers are based on official exchange rates, the so-called nominal per capita GDP or Atlas method figures.
  • But a country’s per capita income is in local currency, that is, rupees.
  • Typically, when economists use the trap idea, they at PPP (purchasing power parity) dollars, using PPP exchange rates, not official exchange rates. India’s PPP per capita income is now around $7,000.
  • The grist to the mill is usually provided by empirical research, documenting the development experience of a diverse range of countries.

Reasons for such a trap

  • On the one hand, as countries attained middle-income status, they would be squeezed out of manufacturing and other dynamic sectors by poorer, lower-cost competitors.
  • On the other hand, they would lack the institutional, human, and technological capital to carve out niches higher up the value-added chain. Thus, pushed from below and unable to grasp the top, they would find themselves doomed to, well, middle-income status.

Faults in this assumption

  • Middle-income countries as a group continued to grow as fast or faster than the convergence standard demanded.”
  • First, a trap cannot be defined without referring to a time-frame.
  • The time series on PPP per capita is a bit more difficult to get than the official rate per capita.
  • With that caveat, take a look at the time series of any relatively more advanced country. Until a few decades ago (a cut-off in 1960 or 1970 will suffice), all these countries were stuck in middle-income traps.
  • Second, the middle-income trap is sometimes defined not with respect to an absolute threshold level of per capita income, but with per capita income expressed as a share of US per capita income.
  • Even if one uses this relative notion, the case of a middle-income trap existing has not been proven.


  • Does this mean there are no issues with the Indian economy? Certainly not. After the elections, with a new government in place, plenty of people have come up with agendas for reform. In most instances, these are not short-term quick fixes, but medium-term changes.
  • Therefore, they can rightly be called structural reforms, and the suggestions should be debated, accepted and implemented.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

National Data WarehousePriority 1


From UPSC perspective, the following things are important :

Prelims level : National Data Warehouse (proposed)

Mains level : Need for NDW

Setting up National Data Warehouse

  • The statistical reforms are necessary for ensuring responsiveness to the changing needs of society.
  • The statistics ministry said that it proposes to set up a NDW with a view to leveraging big data analytical tools to further improve the quality of macro-economic aggregates.
  • Here technology will be leveraged for using big data analytical tools for further improving the quality of macro-economic aggregates.
  • Efforts are also on to evolve a legislative framework under which the National Statistical Commission (NSC) may function with independence and give holistic guidance for improving the national statistical system.

Why such move?

  • Over a period of time, there have been increasing demands on the statistical system for the production of relevant and quality statistics.
  • MoSPI has been criticised in some sections for the quality of macro-economic data.
  • The Ministry said revision in GDP estimates occur when data coverage from administrative sources improves over time and these improvements get well documented.
  • Consequently, the initial estimates of GDP tend to be conservative.
  • To improve this, it would require concomitant changes in the sectoral data flows and associated regulatory framework in the data source agencies to facilitate the use of more macro modelling techniques.

Recent initiatives

  • The Ministry has been accommodating these demands by optimizing the available resources and use of technology.
  • The recent step for the merger of CSO and NSSO was aimed at leveraging the strengths of the two organisations so that it can meet the increasing demands, MoSPI said.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[op-ed snap] The only mantraMains Onlyop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Nothing Much

Mains level : Resolution of underlying economic challenges should be the foremost agenda.


India’s problem is not unemployment — this has bounced in the low and narrow range of 4-7 per cent for 50 years — but employed poverty. Our traditional labour market shock absorbers — farm employment and self-employment — are dying because kids born after 1991 are unaccepting of self-exploitation and recognise the wage premiums, identity, dignity, soft skills, apprenticeship effect, and financial inclusion of formal jobs.

1.Poor Formalisation –

India’s 6.3 crore enterprises only convert to 12 lakh GST registrants, 10 lakh provident fund payers, and 19,500 companies with a paid up capital of Rs 10 crore or more because of our regulatory cholesterol — 58,000-plus compliances, 3000-plus filing, and 5000-plus changes every year.

2. Facilitating ease of business –

We need massive ease-of-doing business that rationalises (cuts down ministries, compliances, and filings), simplifies (adopts a universal enterprise number and one labour code) and digitises (adopts a paperless, presenceless and cashless process for all employer compliance by shifting from uploads to websites to an API architecture with straight-through-processing).

3. Reverse payroll wedge

  • India’s labour laws have an insane reverse payroll wedge — employers are forced to deduct 40 per cent-plus of gross wages from chithi waali salary (gross wages) for employees with monthly wages up to Rs 25,000.
  • Yet, haath waali salary (net wages) are only 9 per cent lower for employees with monthly wages above Rs 25,000.
  • This wedge murders formalisation and confiscates property from the poor; all wages belong to employees in a cost-to-company world.

Need of competition to fix  Reverse payroll wedge

  • Fixing this wedge needs competition; EPFO is the world’s most expensive government securities mutual fund (300-plus basis points for administration fees) and Employees’ State Insurance (ESI) is the world’s most expensive health insurance programme (less than 50 per cent of contributions are paid out as benefits).
  • The reform agenda is clear — employee contribution must be made optional, employees must choose who handles their employer contributions, and social security programme fees must be capped to their costs.
  • One driver of 20 million new social security payers has been the Pradhan Mantri Rojgar Protsahan Yojna — this partial reimbursement to employers for incremental low-wage employees has incentivised social security enrolment, is easy to verify, and hard to fudge and should be extended for a fixed period of three years.

4.Challenges before skill development

  • Our skill development system faces the difficult trinity of cost, quality and quantity combining with challenging changes to the world of education.
  • In a world where Google knows everything, knowing is not as important as lifelong learning and hard skills become a necessary but not sufficient condition for the wage premium.

Lack of Apprenticeships –

Apprenticeships are the future of learning, yet India only has 5 lakh apprentices instead of 1.5 crore (if we use Germany’s number of 2.7 per cent of the labour force).

Ways to improve Apprenticeship –

  • Changes could include merging the two central government initiatives, Regional Directorates Of Apprenticeship Training (RDAT) and Board of Apprentice Training (BOAT), operate effective online matching platforms and reinforcing the regulatory legitimacy of apprenticeships as classrooms to overcome the trust deficit with employers.
  • Most importantly, we must enable degree-linked apprentices (skill universities await clearance for linking apprentices to degrees via distance and online delivery).
  • There must also be a focus on financialisation reform and sustainable competition.
  • Fairly-priced capital catalyses formalisation, yet India’s credit to GDP ratio is 50 per cent (rich countries are at 100 per cent). Sadly, Arunachal Pradesh is at one per cent and Bihar is 17 per cent.
  • Lowering our cost of money has begun but sustainably targeting a higher credit to GDP ratio needs more bank licences, fixing the governance at nationalised banks, blunting the asset liability mismatch at NBFCs (some irrationally funded 30 per cent of their balance sheet with commercial paper) and restoring the sanctity of the 270-day IBC bankruptcy deadline.
  • More Indian enterprises need formal financial credit — capital investment and working capital availability drive productivity — without replicating the rash lending between 2008 and 2014 that gave us Rs 14 lakh crore worth of bad loans. 

6.Labour as a state subject

We should consider making labour a state subject and must continue the decentralisation of funds, functions and functionaries to states while simultaneously creating accountability, capabilities and resources in city governance.


The 67 per cent-plus turnout in our recent election not only reflect the invisible threads that hold India together but capture an aspiration that breaks with India’s economic past. This dua needs policy to pray to the one god of formal jobs.

Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[op-ed snap] The sum and substance of the jobs dataMains Onlyop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Nothing Much

Mains level : Alternate view on unemployment rate


The report from the Periodic Labour Force Survey (PLFS) is finally out. In particular, the staggering increase in the unemployment rate, from 1.7% in 2011-12 to 5.8% in 2017-18 for rural men and from 3.0% to 7.1% for urban men, has generated wide ranging hand-wringing.


  • First, while the unemployment rate is a frequently used measure of poor performance of the economy, under conditions of rising school and college enrolment, it paints an inaccurate picture.
  • Second, the reported unemployment rate is dominated by the experience of younger Indians who face higher employment challenges and exhibit greater willingness to wait for the right job than their older peers.
  • Third, the unemployment challenge is greatest for people with secondary or higher education, and rising education levels inflate unemployment challenges.
  • These three conditions, taken together, suggest that part of India’s unemployment challenge lies in its success in expanding education while not expanding formal sector jobs.

Unemployment rate data

  • Change in education enrollment-  India has seen massive changes in proportion of individuals enrolled in an educational institution over the past decade.
  • For 15-19-year-old rural men, the proportion primarily engaged in studying increased from 64% to 72% between 2011-12 and 2017-18. As a result, while the proportion of the population aged 15-19 that is unemployed doubled from 3% to 6.9%, the unemployment rate tripled from 9% to 27%.

Reasons for high unemployment in this age group –

Contribution from family – Much of the increase in male unemployment is located among ages 15-29. It is important to recognise that in a country dominated by informal sector work, remaining unemployed is possible only for individuals whose families can survive without their immediate contributions.

High for people with higher education – Finally, the unemployment rate has been traditionally high for men with secondary or higher level of education and this is the segment in which most of the increase in unemployment is located.

Educational expansion without employment expansion –

  • Educational expansion affects the unemployment debate by skewing the unemployment statistics and by creating greater competition for well-paid jobs among a rising population of educated youth.
  • Rising prosperity allows young graduates to wait for well-paying jobs, creating an army of educated unemployed, before being forced to accept any work, frequently returning to family farms or starting small shops.

Meeting aspirations

  • After decades of economic stagnation, the 21st century has seen massive growth in aspirations.
  • Parents invest their hearts and souls along with their rising incomes in educating their children.
  • Children hope to make rapid economic progress well beyond the modest gains achieved by their parents’ generation.
  • The unemployment statistics based on PLFS data document the challenges these young people are likely to face.


Creating jobs for an increasingly educated workforce and ensuring that the new workers are well equipped to enter the labour force are twin challenges that deserve greatest priority. One hopes that leaders of the present government who made their political debut during the student movement in the 1970s will meet this challenge head-on.

Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[op-ed snap] Slowdown confirmed: on deepening economic crisisMains Onlyop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Nothing Much

Mains level : Economic slowdown is indicating towards the need of change.


The first macro data set released under the new Finance Minister, Nirmala Sitharaman’s watch, on Friday, showed an under-performing economy with GDP growth falling to 5.8% in the fourth quarter of 2018-19 and pulling down the overall growth for the fiscal to a five-year low of 6.8%.


  • Growth in gross value added (GVA), which is GDP minus taxes and subsidies, fell to 6.6% in 2018-19, pointing to a serious slowdown.
  • If further confirmation were needed, the growth in core sector output — a set of eight major industrial sectors — fell to 2.6% in April, compared to 4.7% in the same month last year.
  • And finally, unemployment data, controversially suppressed by the Union government so far, showed that joblessness was at a 45-year high of 6.1% in 2017-18.
  • These numbers highlight the challenges ahead for Ms. Sitharaman as she sits down to draft the Budget for 2019-20, to be presented on July 5.

The overall slowdown in the economy

  • The economy is beset by a consumption slowdown as reflected in the falling sales of everything from automobiles to consumer durables, even fast-moving consumer goods.
  • Private investment is not taking off, while government spending, which kept the economy afloat during the last NDA government, was cut back in the last quarter of 2018-19 to meet the fiscal deficit target of 3.4%.
  • The good news is that inflation is undershooting the target and oil prices are on the retreat again.
  • But the rural economy remains in distress, as seen by the 2.9% growth in agriculture last fiscal; the sector needs a good monsoon this year to bounce back.
  • Overall economic growth in the first quarter of this fiscal is likely to remain subdued, and any improvement is unlikely until the late second quarter or the early third.

Way Forward

  • In the near term, she has to boost consumption, which means putting more money in the hands of people.
  • That, in turn, means cutting taxes, which is not easy given the commitment to rein in the fiscal deficit.
  • In the medium term, Ms. Sitharaman has to take measures to boost private investment even as she opens up public spending again.
  • These call for major reforms, starting with land acquisition and labour, corporate taxes by reducing exemptions and dropping rates, and nursing banks back to health.
  • On the table will be options such as further recapitalisation of the ailing banks, and consolidation.


  • The question, though, is where the money will come from.
  • With tax revenues likely to be subdued owing to the slowdown, the Centre will have to look at alternative sources such as disinvestment.
  • There may be little choice but to go big on privatisation. A rate cut by the Reserve Bank of India, widely expected this week, would certainly help boost sentiment.


But it is the Budget that will really set the tone for the economy.

Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[op-ed snap] Why the integrity of data mattersMains Onlyop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Nothing Much

Mains level : Autonomy of NSC is required to maintain sanctity of data, surveys.


The announcement that the government has decided to merge the National Sample Survey Office (NSSO) into and under the Central Statistics Office (CSO) has caused both surprise and concern. ecent attempts to question the veracity of National Sample Survey (NSS) data and the way the issue has been handled have given rise to apprehensions within academia, State governments and the media about the prospect of radical changes in the present system for deciding substantive issues of scope, design, scrutiny and validation of the surveys.

The present system

Under the present system, every year various departments of government send a list of subjects that they would like to be investigated by the NSSO.

Request for investigation are sent to NSC –

The requests are sent to the National Statistical Commission (NSC), which has respected economists, subject matter specialists and statisticians from government, including the head of the CSO and senior officials of the NSSO responsible for technical aspects of design and conduct of field work, as well as representatives of State governments.

The investigation by NSC –

  • Subject matter specialists in particular fields are also brought in. The proposals are discussed at length keeping in view the budget allocations, availability of trained field staff and supervisors.
  • In doing so, the conduct of periodic surveys on important issues is also considered. (It should be noted that budget allocations, and personnel of the NSSO have always been under the Department of Statistics.)
  • After providing for periodic repeat surveys (at quinquennial or decennial intervals) of some important aspects (notably consumer expenditure, employment, social consumption, land holdings, rural savings and investments), the subjects to be covered in a particular year and the scope of the inquiry are decided.
  • The tasks of sampling design, the scope and content of information to be collected, design of schedules and protocols of field work are left to be decided by special working groups.
  • The tabulated results are discussed in detail by the NSC and are published after its approval.

Compromising autonomy

  • The NSSO surveys command wide respect among academics, State governments and non-governmental organisations .
  • The existing institutional arrangement in which the NSC, as a professional body independent of government, has not only functioned smoothly but also commands confidence and respect both within the country and abroad must be maintained.
  • Any attempt or even a suggestion that its substantive work, publication and free dissemination of data are subject to the department’s approval will hugely dent the credibility of the Indian statistical system.

Scope for improvement

  • It is widely recognised that there is scope for improvement in the functioning of the institution and the way data are collected.
  • These problems are well known: the NSSO doesn’t have adequate budgetary allocations; there is an acute shortage of trained field staff; the scale of surveys is un-manageably large mainly because the users demand a degree of detail in content and regional disaggregation of estimates.
  • But there are also serious difficulties inherent in trying to get reliable and complete information through the interview method.


  • The solutions call for action by the institutions responsible for gathering data by investing in continuing research on improving sampling design, field survey methods and validation of data.
  • Correcting these deficiencies is entirely in the domain of government.


Increasing the role of CSO officials in running the NSSO will not solve these problems, but they can help by providing funds for specialised research on survey design and methodology. The necessity and importance of such research calls for far greater attention and resources than they receive at present.

Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[op-ed snap] Government’s key agenda must be to accelerate growthMains Onlyop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Nothing Much

Mains level : Economic growth should be top agenda of new government.


Accelerating economic growth must be on top of the agenda of the new government. It is only a fast-growing economy that will generate the surpluses which are necessary to address many of our socio-economic problems and to provide social safety nets.

The decline in the investment rate

  • In current prices, the ratio of Gross Fixed Capital Formation to Gross Domestic Product has stayed low at 28.5% between 2015-16 and 2017-18. In 2018-19 it is estimated at 28.9%. In 2007-08, it was as high as 35.8%. In constant prices, the ratio, has, however, shown a smaller decline from the peak.

Reviving investment

  • The bulk of public investment comes from public sector enterprises, including the Railways.
  • What is needed is for the government to interact with all public sector units and prepare a programme of public investment for 2019-20.

Long term view of Public Sector

Public sector units can take a longer-term view than the private sector. A strong public investment programme can be a catalyst of private investment. In a situation such as the present one, it can crowd in private investment.

Industry government participation

Second, there have to be sector- or industry-wise discussions between the government and industrialists to understand the bottlenecks that each industry faces in making investment and take actions to remove them.

  • Banks are under stress and the ratio of non-performing assets (NPAs) has risen.
  • We need to resolve this issue as early as possible so that banks can get back to lending at a significant pace. In the absence of term lending financial institutions, banks provide both working capital and long-term loans.
  • That is why resolving the issue of NPAs is critically important for larger flow of long-term funds.

Jobs and growth

  • The answer to the problem of jobs is only growth. It is faster growth and faster investment which will generate employment.
  • Sectors such as IT and the financial system, which provided attractive employment to young educated entrants to the labour market in the past, have their own problems.
  • But an improvement in the financial system may trigger some new jobs. Ultimately, it is overall growth which is key to more employment.

Rural Demand –

  • The main concern is the slowdown in rural demand, which can affect the off-take of consumer goods.
  • Agrarian distress, which is the cause of the slowdown in demand, needs to be tackled on a priority.
  • Where distress is due to a fall in prices, the best course of action is to resort to limited procurement so that the excess over normal is procured by the government.

Increase in agricultural output –

  • As far as increase in agricultural output in the short run is concerned, the monsoon is a big question mark.
  • Nothing can be done about it except changing the cropping pattern depending on rainfall.
  • Over the medium term, more attention must be paid to increasing agricultural productivity through consolidation of land holdings and spreading better techniques of cultivation.

Goods and services act

  • The government should get tax authorities, industrialists, traders and, particularly, exporters to sort out the issues together.
  • The Insolvency and Bankruptcy Code was another significant step taken in the last few years.
  • Even here there are some bottlenecks and the government must address them.

Land Reforms –

Compulsory acquisition of land is the antithesis of competition and should be resorted to only in limited cases where the public interest is involved.

Labour Reforms – 

  • Labour reforms should wait until the economy has picked up steam and moved to a higher growth path.
  • Only in these circumstances will there be less resistance.



To conclude, besides economic factors, non-economic factors are also critically important to revive what are often described as ‘animal spirits’. Investment today is based on expectations of future earnings. Thus it is an act of faith in the future. For this to happen, there must be social and political tranquillity.

Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[op-ed snap] Trade troublesMains Onlyop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Nothing Much

Mains level : Industrial slowdown and it's effects


Labour intensive exports remain sluggish, non-oil non-gold imports contract, suggesting weak domestic demand. According to the latest trade data, at the aggregate level, exports grew by a mere 0.64 per cent in April. But, strip away the spurt in petroleum exports, and the remaining exports actually contracted by 3 per cent in April.


  • India’s trade deficit surged to a five-month high of $15.3 billion in April with merchandise export growth slumping to 0.64 per cent — the slowest pace since December 2018.
  • These numbers suggest that the high export growth observed in March may indeed have been an aberration.
  • This subdued performance in April comes after recent data showed that industrial production had contracted by 0.1 per cent in March.
  • With both consumer durables as well as capital goods segments contracting sharply — the latter is a proxy for investment demand — it suggests that the underlying drivers of growth are sputtering.
  • According to the latest trade data, at the aggregate level, exports grew by a mere 0.64 per cent in April.
  • But, strip away the spurt in petroleum exports, and the remaining exports actually contracted by 3 per cent in April.
  • The lacklustre performance can be traced largely to the contraction in exports of engineering goods as well as subdued growth of major labour intensive segments.
  • For instance, gems and jewellery contracted by 13.4 per cent, leather products by 15.25 per cent as did man-made and cotton yarn. Growth of the ready-made garments segment also slumped to 4.4 per cent in April, down from 15 per cent in March.
  • This does not bode well for job creation. On the other hand, imports rose by 4.5 per cent in April, on the back of higher crude and gold shipments.
  • But what is worrisome is that imports, excluding oil and gold, which give a better sense of domestic demand, contracted by 2.2 per cent in April, after contracting by 2.67 per cent in the previous month.

Impact of slow down

  • The near-term prospects for exports appear to be muted. For one, the escalation of trade tensions between the US and China is likely to impact global growth and trade.
  • In fact, last month, the World Trade Organisation (WTO) lowered its projection for global trade growth.
  • It now expects merchandise trade volume growth to fall to 2.6 per cent in 2019, from 3 per cent in 2018.


  • Clearly, the next government has its task cut out. It will have to carefully navigate the intensifying trade war between the US and China while putting in place measures to boost competitiveness and revive exports.
  • Perhaps, easing the compliance burden of the goods and service tax (GST) would be a good starting point.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[op-ed snap] Missing demand: on economic slowdownMains Onlyop-ed snap


From UPSC perspective, the following things are important :

Prelims level : New GDP series

Mains level : Industrial slowdown and it's effects


A welter of data collectively and individually point to one worrying conclusion: economic momentum across sectors is slowing in the widening absence of that key ingredient, demand.

Slowdown across the economy

The decline in the automobile sector –

  • Domestic sales of cars, commercial vehicles and two wheelers all contracted in April, from a year earlier, the Society of Indian Automobile Manufacturers (SIAM) has reported.
  • The decline of almost 16% in total automobile industry sales is an indication that consumption demand across markets — urban and rural, institutional and individual — is petering out.
  • While sales of commercial vehicles, a fair proxy for overall economic activity, slid 6% last month, a 16.4% drop in demand for two-wheelers extended the segment’s slump into the new financial year, mirroring the rippling rural distress.
  • The data on passenger vehicles, which saw the steepest drop in almost eight years, add to the gloom.
  • Car sales shrank almost 20% amid a protracted slump that shows no signs of a reversal.

Output decline in various sector

The latest industrial output figures from the government serve to underscore the widespread nature of the demand drought.

The decline in IIP – The Index of Industrial Production (IIP) for March shows output fell 0.1% from a year earlier to a 21-month low, with the use-based classification revealing a weakening that spared none of the six segments.

Shrink in capital Goods sector – The capital goods sector shrank by 8.7% on the back of an 8.9% contraction in the preceding month.

Fall in consumer durables – Output of consumer durables fell 5.1% from a year earlier, and growth in consumer non-durables production slid to 0.3% from the 14.1% pace in March 2018.

Drag in manufacturing – Manufacturing, which has a weight of almost 78% in the index, continues to be the biggest drag, with output contracting by 0.4% after shrinking by a similar extent in February.

Overall, the sector’s growth slowed to 3.5% in the last fiscal, from 4.6% in 2017-18.

Conclusion by data

  • Overly optimistic GDP growth Rate – The composite picture that emerges from all these numbers belies the CSO’s implicit fourth-quarter GDP growth assumption of 6.5%, and paints it as overly optimistic.
  • Unstable global conditions – With global headwinds strengthening in the backdrop of an escalating trade war between the two largest economies, the U.S. and China, and rising tensions in West Asia beginning to push up energy costs from the top oil-exporting region, Indian policymakers have to contend with an external sector that would likely only add to the domestic pressures, most certainly in the near term if not in the longer.
  • Need for a normal monsoon – The distress in the farm sector may just ease marginally if the monsoon does turn out to be “near normal” as forecast last month, and could help spur a demand revival in the rural hinterland.


Still, the new government that emerges after May 23 must spare little time in drawing up appropriate policy measures that not only help reinvigorate demand but also ensure that such a revival is robust, across-the-board and enduring.

Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[pib] 7th Economic Census 2019PIBPriority 1


From UPSC perspective, the following things are important :

Prelims level : Economic Census

Mains level : Importance of the Economic Census

  • In the run up to upcoming 7th Edition of Economic Census, a national training workshop of the Master Trainers was organized by the Ministry of Statistics and Program Implementation (MoSPI).
  • The census is to begin in June this year.

7th Economic Census -2019

  • The 7th Economic Census -2019 is being conducted by MoSPI to provide disaggregated information on various operational and structural aspects of all establishments in the country.
  • MoSPI has partnered with Common Service Centres, CSC e-Governance Services India Limited, a Special Purpose Vehicle under the MEITY as the implementing agency for 7th
  • An IT based digital platform for data capture, validation, report generation and dissemination will be used in this Economic Census.

About Economic Censuses

  • In 1976, Government of India launched a plan scheme called Economic Census and Surveys.
  • It is the census of the Indian economy through counting all entrepreneurial units in the country which involved in any economic activities of either agricultural or non-agricultural sector which are engaged in production and/or distribution of goods and/or services not for the sole purpose of own consumption.
  • It provides detailed information on operational and other characteristics such as number of establishments, number of persons employed, source of finance, type of ownership etc.
  • This information used for micro level/ decentralized planning and to assess contribution of various sectors of the economy in the gross domestic product (GDP).

Censuses till date

  • Total Six Economic Censuses (EC) have been conducted till date.
  • In 1977 CSO conducted First economic census in collaboration with the Directorate of Economics & Statistics (DES) in the States/UTs.
  • The Second EC was carried out in 1980 followed by the Third EC in 1990. The fourth edition took place in 1998 while the fifth EC was held in 2005.
  • The Sixth edition of Economic Census was conducted in 2013.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[op-ed snap] Of shells, companies and GDPMains Onlyop-ed snap


From UPSC perspective, the following things are important :

Prelims level : New GDP series

Mains level : NSSO finding of shell companies inclusion in MCA-21 might impact gdp data.


About a third of non-government non-financial companies in the services sector are not traceable is the finding of a National Sample Survey Office (NSSO) survey for 2016-17 that has just been released. Since such entities could be shell/fake/bogus companies included in the MCA-21 database of “active” companies used for estimating the gross domestic product (GDP), the new finding could imply that private corporate sector GDP is being currently overestimated, denting the official growth narrative.

The background

  • Change in the base year – In 2015, the Central Statistics Office (CSO) issued a new GDP series with 2011-12 as the base year, replacing the earlier series with the 2004-05 base-year as a routine matter.
  • Usually, the revision leads to a slight expansion of the absolute GDP in the base year, but its growth rate does not change, implying that the underlying pace of economic expansion in the two series has remained the same.
  • Change in growth rate – This time was different, however. The absolute GDP size — the sum of the value of all (unduplicated) goods and services produced in a year — got diminished slightly in the base year, and its growth rates went up subsequently.
  • Application of global template – Faced with public scrutiny and scepticism, the CSO defended the revision by claiming that it had followed the latest global template (the System of National Accounts 2008), applying improved methodologies to a newer and larger data set.
  • Inclusion of MCA-21 financial returns – In a first, the new series estimated private corporate sector (PCS) GDP directly using the Ministry of Corporate Affairs’ (MCA) statutory filing of financial returns, MCA-21.
  • Effect on industries  – Accounting for over a third of GDP, as the non-financial PCS now spans widely, the revision has affected the estimates of many industries and services. Hence the GDP debate has mostly centred on the PCS.

Screening and setback

  • To redress the shortcoming, the CSO is committed to launching an annual survey of services (on the lines of the ASI).
  • As a first step, the NSSO carried out a survey of non-government and non-financial companies/establishments in 2016-17.
  • The NSSO report says, “About 45% of MCA units were found to be out-of-survey/causality
  • The inference could be that such companies are likely to be shell/fake/spurious entities that remain legally registered (but merely on paper), without actually producing goods and services.

Impact of estimation

  • The survey findings could bring down the growth estimates.
  • However, those knowledgeable have dismissed such an apprehension on two counts:
    • One, shell companies add value to the economy, hence their deletion would underestimate GDP.
    • Two, as all active companies are said to submit their audited accounts at least once in three years, the contribution of shell companies is well captured in the MCA database.
  • Both arguments seem questionable.
    • Shell companies, by definition, do not produce goods and services; they help the promoter/owner to hide profits or evade taxes/regulation.
    • The argument that all active companies under the MCA have filed statutory returns at least once during the last three years is a bureaucratic fiction.


Case for scrutiny

  • In sum, the NSSO’s survey of active companies in the services sector discovered that 45% of them could not be traced or misclassified; hence they could represent or be shell/fake/bogus companies.
  • The finding throws into sharp relief the poor quality of the MCA-21 data set, which has formed the backbone of the new GDP series.
  • The NSSO survey results have added more questions about the beleaguered GDP series.

Way forward

As a first step towards dispelling the growing distrust in the new GDP series, the government should put up the MCA-21 data for public scrutiny and lift the opacity of the methodology used in estimating corporate sector output.

Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Asian Development Outlook 2019IOCR


From UPSC perspective, the following things are important :

Prelims level : Highlights of the report

Mains level : India’s economic growth: prospects and challenges

  • Asian Development Bank has published its flagship report Asian Development Outlook 2019.

Asian Development Outlook 2019

  • ADB, in its report mentioned that recent policy measures by the GoI to improve the investment climate and boost private consumption and investment will help India to lift economic growth in the next two fiscal years.
  • For the entire Asia, the multilateral agency forecasted that growth will soften to 5.7 per cent in 2019 and 5.6 per cent in 2020.
  • India will remain one of the fastest-growing major economies in the world this year given strong household spending and corporate fundamentals said the report.
  • Income support to farmers, hikes in procurement prices for food grains, and tax relief to tax payers earning less than Rs 5 lakh will boost household income.
  • Declining fuel and food prices are also expected to provide an impetus for consumption.
  • An increase in utilization of production capacity by firms, along with falling levels of stressed assets held by banks and easing of credit restrictions on certain banks, is expected to help investment grow at a healthy rate.

About ADB

  • The ADB is a regional development bank established on 19 December 1966 which is headquartered in Philippines.
  • ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty.
  • The bank admits the members of the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP).
  • The ADB was modeled closely on the World Bank, and has a similar weighted voting system where votes are distributed in proportion with members’ capital subscriptions.
  • The president has a term of office lasting five years, and may be reelected.
  • Traditionally, and because Japan is one of the largest shareholders of the bank, the president has always been Japanese.
  • ADB is an official United Nations Observer.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[op-ed snap]Consumption is the key, not easy to stimulate either govt or private spendingop-ed snap


Mains Paper 3: Economic Development| Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

From UPSC perspective, the following things are important:

Prelims level: GDP.

Mains level: The news-card analyses the recent slowing down of growth and how to revive it.



It won’t be easy to stimulate either govt or private spending.Indeed, even if RBI trims the repo rate by 50 basis points, it won’t have much of an effect since the liquidity in the banking system will probably stay in a deficit with the currency in circulation remaining elevated.


  • As anticipated, much of the slowdown in the economy during Q3FY19—growth came in at just 6.6% year-on-year (y-o-y)—was due to slower government consumption and, to a lesser extent, moderating private consumption.
  • Even this is hard to comprehend given the festive season was one of the dullest ever, resulting in weak sales of durables such as cars.

Distressed Financial Conditions

  • Tighter financial conditions since September 2018, after the crisis in the Non-Banking Financial Companies (NBFC) space, have choked off the flow of credit to consumers.
  • Liquidity will remain tight given the relatively slow growth of deposits, making loans costlier for consumers.
  • Again, much of the consumer credit has been in the form of unsecured loans, and banks will be forced to cut back on these.
  • At least 30% of the sales of consumer durables and staples now emanates from rural India, so these will be impacted by the relatively weak purchasing power in the hinterland.
  • Also, slowing global growth will exacerbate the cyclical slowdown, not just hitting exports but also singeing both manufacturing and investments.
  • That, then, will keep consumption subdued because very few new job opportunities will be created.

Current Efforts to revive Growth

  •  The large amounts of FDI flowing into the e-commerce sector are resulting in jobs—both for the skilled and unskilled.
  •  But that is not enough to keep consumption growth at the current pace. Given much of the local investments are being channeled into buying stressed assets—either via the IBC route or otherwise—no new jobs are being created.
  • Thus, even the limited investments won’t sustain since promoters don’t have unlimited resources, are fairly leveraged and are unlikely to take big bets until the elections are over.
  • Indeed, even if RBI trims the repo rate by 50 basis points, it won’t have much of an effect since the liquidity in the banking system will probably stay in a deficit with the currency in circulation remaining elevated.


  • To be sure, there will some election-related spending on automobiles and other items, but that will taper off in a few months.
  • Unfortunately, government spending which has been holding up consumption in the last couple of years will remain muted since tax revenues have fallen way short of targets.
  • The relatively poor GST collections threaten to crimp government expenditure in 2019-20, too. Also, off-budgetary spends have been uncomfortably high and could be curtailed further, and that will lower spends.




Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Centre’s debt-to-GDP falls, States’ risesPrelims OnlyPriority 1


Mains Paper 3: Economy| Issues relating to planning, mobilization of resources, growth, development and employment.

From UPSC perspective, the following things are important:

Prelims level: Basic knowledge of the present situation of economy has been tested by UPSC in recent times

Mains level: The news-card analyses Public Debt situation


  • While the Centre is moving in the right direction in terms of meeting the N.K. Singh Committee recommendations on public debt, the States are moving in the opposite direction, data released by the government show.

States are lagging

  1. According to the Status Paper on Government Debt for 2017-18, the Centre’s total debt as a percentage of GDP reduced to 46.5% in 2017-18 from 47.5% as of March 31, 2014.
  2. The total debt of the States, however, has been rising over this period, to 24% in 2017-18, and is estimated to be 24.3% in 2018-19.
  3. In absolute terms, the Centre’s total debt from the end of March 2014 to till 2017-18, represents a 45% increase.
  4. The total debt of the States increased up to almost 63%.

Alarming for States

  1. The Central debt has been within control because the government has been trying to stick by-and-large to the fiscal deficit parameters.
  2. The increase in the debt stock at the State level is worrying because they don’t have the other means to service the debt if it goes beyond a certain point.
  3. The report says that the States do have some fiscal space to reduce their borrowing in the coming years due to the large cash surpluses they hold.
  4. State governments as a group have exhibited a tendency to hold large cash surpluses/investments in Cash Balance Investment Account on a consistent basis while at the same time resorting to market borrowings to finance their GFD (Gross Fiscal Deficit).
  5. This indicates scope for reducing the quantum of market borrowings by State governments in case they bring down their cash surpluses (parked as investment in treasury bills of the Central government).

N.K. Singh Recommends

  1. The N.K. Singh-headed FRBM (Fiscal Responsibility and Budget Management) Review Committee report had recommended the ratio to be 40% for the Centre and 20% for the States, respectively, by 2023.
  2. It said that the 60% consolidated Central and State debt limit was consistent with international best practices, and was an essential parameter to attract a better rating from the credit ratings agencies.

Role of UDAY bonds

  1. Outstanding liabilities of States have increased sharply during 2015-16 and 2016-17, following the issuance of UDAY bonds in these two years.
  2. It was reflected in an increase in liability-GDP ratio from 21.7% at end-March 2015 to 23.4% at end-March 2016 and further to 23.8% at end-March 2017.
  3. The total outstanding liabilities as a percentage of GDP stood at 24% as at end-March 2018 and are expected to move upward to 24.3% at end-March 2019.


  1. The ratings agencies have predicted that the combined fiscal deficit of the States to be 3.2% of GDP in financial year 2020 (higher than the prescribed 3%).
  2. It is unlikely that the States will meet their 20% debt-GDP ratio target by 2023.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[op-ed snap] How India’s economy smoothly navigated troubled watersop-ed snap


Mains Paper 3: Economy|  Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

From UPSC perspective, the following things are important:

Prelims level: Basic knowledge of the present situation of Indian economy.

Mains level: The news-card analyses the challenges of Indian Economy and its present situation w.r.t global economic challenges, in a brief manner.


  • According to several economic experts, Indian economy is on a recovery path. However, for several others, the economic outlook is still gloomy.

Positive side of Indian Economy

  • The advance estimates of national income indicate that real gross domestic product (GDP) will grow at 7.2% in FY 2018, up from 6.7% last year.
  • The advance estimates, based on data for the first six months and up to November for some indicators, are a fair assessment of the likely outcome.
  • The earlier projections of the Reserve Bank of India (RBI), the International Monetary Fund (IMF) and the World Bank are also all higher than the advance estimates.
  • Hence, barring any major shock in the next 10 weeks, it is quite likely that the year will end with at least 7% growth.
  • This robust growth is also fairly diversified with more than 8% growth in manufacturing and 9% growth or more in electricity and other utilities, construction, and public services.
  • It is particularly encouraging that the growth upturn is being led by the recovery of investment instead of debt-financed consumption as in the recent past.
  • After stagnating for several years, quarterly growth of gross fixed capital formation (GFCF) has been recovering since the second quarter of FY 2017.
  • It is now estimated to grow by 12.2% in real terms in FY 2018 compared to 7.6% in FY 2017.
  • The investment rate, which had declined to 31%, is now estimated to be back up to 33%.
  • Further, implementation of the 2016 Insolvency and Bankruptcy Code and progress on resolutions under the National Company Law Tribunal are important reforms.

Low Rate of Inflation: Mixed blessing

  • The consumer price index (CPI) inflation rate is now down to only 2.2% and the wholesale price index (WPI) inflation rate is 3.8%.
  • However, the decline in inflation is mainly on account of the decline in food and fuel prices.
  • Fuel prices are unlikely to harden any time soon, unless events in West Asia deliver a political shock. This has been a great boon for oil importing countries such as India.
  • However, whether the decline in food prices, which implies a shift in the terms of trade against agriculture, is an unmixed blessing in the present context of widespread distress among farmers is a question to be pondered over.
  • Also, core inflation (excluding food and fuel prices) is still close to 6%.
  • This presents a dilemma for monetary policy.
  • RBI’s mandate is to contain the CPI inflation rate at around 4%, but can it ignore the stickiness of core inflation around 6%, especially when central and state government spending is likely to pump-prime demand in the run-up to general elections?

Major deterrent to growth


  • There is still a long way to go in tackling the problem of stressed assets and high levels of non-performing assets in public sector banks which is a major deterrent to growth.
  • There is also a return to discretionary interventions, demonstrated among other things by the arbitrary raising of tariffs in the last budget.
  • These will adversely impact growth in FY 2019.


  • In the coming few months, experts are of the view that there’s expected surge in pre-election public spending.
  • Combined with a significant shortfall in tax revenues, especially goods and services tax (GST) revenues, this will lead to several fiscal deficit targets of the central and state governments being breached.
  • On the other hand, the past record of political business cycles suggests that there could be a sharp decline in public spending in the post-election period.
  • These swings in public spending can be destabilizing and adversely affect growth in FY 2019.


(c)Challenging External Environment

  • Far more worrying than the above discussed domestic issues is a very challenging external environment.
  • 2018 was the year of great decline. Everything declined: inflation, commodity prices, asset prices, growth.
  • While the decline in inflation is welcome, the decline in growth has now raised fears of deflation in advanced economies.
  • The IMF Data Mapper, which maps growth throughout the world, looks pretty scary.
  • More than half the globe is a dark region shrouded in grey (below 3% growth) or black (negative growth).
  • Soothing shades of green, representing robust growth, are seen only in Asia and a few countries in Africa.
  • Emerging markets and developing countries in Asia grew at 6.5% while sub-Saharan Africa grew at 3.1%.
  • Among major economies, growth declined in 2018 and is expected to decline further in 2019 in the US, European Union, Japan and China.
  • Together, they account for almost two-thirds of the world economy.

Underlying these gloomy numbers is the emergence of multiple risks such as:

  • The trade war between Trump-led US and China;
  • Tensions between US and its European allies, Canada and Mexico;
  • Confrontation in West Asia between the Trump-led coalition of the US, Saudi Arabia, Egypt, and the tacit alliance of Iran, Russia, Turkey, and Syria.
  • The potential spike in oil prices if that confrontation escalates and financial outflows from emerging markets in response to political uncertainties and rising US interest rates are the other major risks.

Effect on Indian Economy

  • India stands out for sailing smoothly through these troubled waters so far.
  • It remains the fastest growing major economy in the world.
  • However, being well integrated with the world economy, India cannot continue to grow rapidly as global growth declines.
  • The trade deficit, up from 1.7% of GDP in 2016-17 to 3.0% in 2017-18, is projected to rise further to 3.5% in 2018-19, thereby completely offsetting the expansionary impact of the fiscal deficit.
  • The net reduction of nearly $30 billion in foreign exchange reserves since 1 April 2018 is also a consequence of the gloomy global economic environment.

Way Forward

  • These adverse external factors, combined with the domestic challenges mentioned earlier, will pull growth down to less than 7% in FY 2019.
  • It could decline further in the event of a major negative shock such as a failed monsoon or a spike in global geopolitical tensions.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[op-ed snap] Number theory: on lowering UPA-era GDP growth rateop-ed snap


Mains Paper 3: Economy | Indian Economy Issues relating to planning

From the UPSC perspective, the following things are important:

Prelims level: GDP calculation, Base year, CSO, United Nations System of National Accounts

Mains level: Controversy related to GDP revision and why a robust methodology is necessary for calculating growth


Revised GDP data

  1. The release of the new GDP back series data shows that the economy grew at an average of 6.7 per cent between 2005-06 to 2008-09 as well as between 2009-10 to 2013-14
  2. This is lower than the earlier estimates of 8.1 per cent and 7 per cent average growth respectively going by the earlier 2004-05 base
  3. The biggest of learning is that India never really decoupled from the global economy during the years of the financial crisis (2008-10), unlike what was earlier believed

Revisions of figures not new

  1. Backcasting, or reworking past national accounts statistics based on the latest base year, is a regular exercise that governments carry out
  2. Mainly done to enable precise comparison and analysis, it is a difficult exercise prone to contestation as it involves the inclusion of newer data sources, exclusion of outdated ones and making some subjective assumptions in the process

Spat over economic data

  1. In January 2015, when the government switched to a new series with 2011-12 as the base year, and subsequently after the report of the Committee on Real Sector Statistics which was mandated by the National Statistical Commission to work out a robust methodology under the new series a few months ago, there was a controversy, with agencies such as the IMF besides the RBI flagging their concerns
  2. The release of the data under the new series in 2015, and also later, had led to sceptics questioning the validity of growth figures

Reliability of the data

  1. Any criticism of the data has to take into account the fact that it has been generated by a thoroughly professional organisation, the CSO, and the methods have been scrutinised by experts, including past chief statisticians, and the Advisory Committee on National Accounts Statistics
  2. Certainly, the release of the back series by the Niti Aayog goes against convention and is bad in optics
  3. But this should not be the reason to contest its integrity
  4. The method of computation reflects the latest United Nations System of National Accounts
  5. It also captures changes in the economy since 2004-05
  6. Data sources have also been updated. Experts had testified to the robustness of the method when it was introduced in 2015

Way forward

  1. There is little doubt that India needs to invest more in data collection and integration and do informal sector surveys more frequently
  2. Robust, updated data are, in fact, insurance against politicians hijacking what is essentially an economic exercise
  3. Revisions in economic growth data are not uncommon elsewhere but what political parties ought to keep in mind is the potential damage to the credibility and its impact on investors, both global and domestic, who rely on the quality, reliability and consistency of data when they pump in money and on informed policy-making

With inputs from the article: Back and forth

Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Nations increasing wealth at the expense of environment, shows Inclusive Wealth ReportIOCR


Mains Paper 3: Economy | Inclusive growth & issues arising from it.

From UPSC perspective, the following things are important:

Prelims level: Inclusive Wealth Report 2018

Mains level: Inclusive growth and GDP as measure of growth


  • The Inclusive Wealth Report 2018 shows that while overall global wealth is rising, the increase for many countries comes at the expense of environmental assets, such as water, clean air, forests and biodiversity.

Inclusive Wealth Report 2018

  1. A country’s inclusive wealth is the social value (not dollar price) of all its capital assets, including natural capital, human capital and produced capital.
  2. The IWR 2018 builds on previous versions of the report (IWR2012 and IWR 2014) and advances methods of measuring the base of economy- capital of all types.
  3. It covers the period from 1990 to 2014, which is 25 years, which provides us with a picture of the changes in capital assets over almost a generation.
  4. It is biennially released by UNEP, that seeks to evaluate and report on a country’s wealth and wellbeing.
  5. IWI is a tool assessing a nation’s ability to look after its wealth in a way that is sustainable and safeguards its future generations.

Highlights of the report

  1. The Inclusive wealth (IW) in 135 countries was higher in 2014 compared to the level in 1990 and the global growth rate of IW was 44% over the indicated period.
  2. This implies an average growth rate of 1.8% per year.
  3. However, during the same period the global GDP growth per year was 3.4%, which is close to twofold of the annual growth rate of growth in IW.
  4. The global level growth of each of the three capitals over the study period indicate that produced capital was growing at an average rate of 3.8% per year and health and education induced human capital was growing at 2.1%.
  5. Contrary, natural capital was decreasing at a rate of 0.7% per annum.
  6. The structure of capital at the global scale as of 2014 has composed of produced capital (21%), human capital (59% of which 26% education induced human capital and 33% is health induced human capital), and natural capital (20%).

Inclusive wealth over GDP

  1. By this measure, 44 of the 140 countries – more than a third – ranked in the report’s Inclusive Wealth Index have declined in inclusive wealth per head since 1998, even though GDP has increased in many of them.
  2. The report explores alternatives to using Gross Domestic Product (GDP) as a measure of a country’s wealth.
  3. It says that GDP measures the size of a country’s economy but not its underlying asset base.
  4. Instead, it uses inclusive wealth, which focuses on stocks of manufactured, human and natural capital.

Way Forward

  1. The health of an economy must be drawn from the health of the environment.
  2. To make the right choices that will keep us on a sustainable path, we have to be able to properly measure our progress.
  3. This report will equip policy-makers with the right numbers, so that they can make the right decisions to deliver results for generations to come.

With inputs from: UN Environment

Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

India, Japan sign $75 billion currency swap agreementPriority 1


Mains Paper 2: IR | Bilateral, regional & global groupings & agreements involving India &/or affecting India’s interests

From UPSC perspective, the following things are important:

Prelims level: Particulars of the BSA

Mains level: India-Japan economic relations



  • India and Japan Monday concluded a $75 billion Bilateral Swap Arrangement (BSA), a move that will help in bringing greater stability in foreign exchange and capital markets in the country.

Bilateral Swap Arrangement (BSA)

Why Currency Swap?

  1. RBI’s foreign currency reserves have shrunk from over $426 billion in April
  2. The rupee has depreciated the most among Asian currencies amid emerging market volatility triggered by rising US interest rates, pricier crude, geopolitical concerns and intensifying protectionism and trade wars.
  3. It has fallen over 13% since start of 2018, having recovered from 74.48 to the dollar earlier this month to close at 73.41.
  4. The arrangement will be used only when required, and will help meet short-term liquidity mismatches.
  5. India has taken several steps to contain its current account deficit, which could swell to an estimated 2.8% of GDP, and is seen as the root cause of rupee volatility.
  6. Conversely, Japan can also seek dollars from India in exchange for yen.

Other measures to keep CAD

  1. Some of the measures taken by the government to attract foreign capital include the review of certain restrictions on FPI investment in debt.
  2. It is promoting exports through hike in customs duty to curtail imports of non-essential items, relaxations in the policy for external borrowings and issuance of offshore rupee bonds (Masala Bonds) etc.

What it means for India?

  1. The BSA will allow India to pay for any loans that it borrows from Japan in Indian rupees, rather than borrowing a third-party acceptable currency like the US dollar.
  2. It will also allow the country to make any interest or principal payments in domestic currency.
  3. This, in turn, will increase the demand for the national currency in the forex market, making it more valuable, and stabilizing the rupee-to-dollar ratio.

Benefits of Currency Swap

  1. The BSA will aid in bringing greater stability to foreign exchange and capital markets in India
  2. This facility will enable the agreed amount of foreign capital being available to India for use as and when need arises.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Estimates panel wants GDP norms changedDOMR


Mains Paper 3: Economy | Growth

From UPSC perspectives following things are important:

Prelims level: GDP, GVA and factors affecting growth

Mains level: Issues with current GDP measurement in India



  1. The current manner in which GDP is measured needs an overhaul as it provides an incomplete estimation of economic activity a/c to a report by the Estimates Committee of Parliament.
  2. The current GDP and Gross Value Added measures have also been questioned by all stakeholders alike.

Why revamp GDP norms?

  1. The report said the current measure of GDP did not incorporate the economic contributions of women in running households and maintaining accounts.
  2. Nor did it have any measure of whether an increase in GDP resulted in an increase in happiness.
  3. Whereas any rise in GDP growth requires utilization of natural resources, their utilization and depletion is not taken into account while measuring GDP.
  4. The Committee strongly recommends evolving indicators/parameters to gauge the environmental resource decay and replenishment.

New avenues for GDP

  1. The report highlighted that the current GDP measure, doesn’t take into account the increase in production due to other factors such as the change in quality of the output due to improvements in technology like artificial intelligence.
  2. It noted that there was no mechanism to measure whether increase in GDP added to happiness, specifically, whether leisure helped in increasing GDP or vice versa.
  3. The Committee strongly recommends the government to have mechanisms by coming up with new measures of GDP estimation and statistical measurement of other socio-economic factors.


Gross Value Added

  1. GVA it is a measure of total output and income in the economy.
  2. It provides the rupee value for the amount of goods and services produced in an economy after deducting the cost of inputs and raw materials that have gone into the production of those goods and services.
  3. It also gives sector-specific picture like what is the growth in an area, industry or sector of an economy.
  4. While GVA gives a picture of the state of economic activity from the producers’ side or supply side, the GDP gives the picture from the consumers’ side or demand perspective.
  5. Both measures need not match because of the difference in treatment of net taxes.
  6. GDP = GVA + taxes on products – subsidies on products
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[op-ed snap] Time for economic policy vigilanceop-ed snapPriority 1


Mains Paper 3: Economy | Growth

From UPSC perspective, the following things are important:

Prelims level: Not much

Mains level: Issues being faced by Indian economy and what can be done to maintain growth momentum


Growth in economy picking up

  1. The Indian economy is gaining momentum
  2. The annual assessment recently released by the International Monetary Fund (IMF) showed that it expects the Indian economy to grow at 7.3% in the current, and 7.5% in the next, fiscal
  3. India is contributing 15% to global growth
  4. Some of the recent structural reforms, such as the implementation of the goods and services tax (GST) and Insolvency and Bankruptcy Code (IBC), along with liberalization of foreign direct investment and improvement in the ease of doing business, will help improve economic activity

Risks being faced by the economy

1. External Sector

  • On the external front, there are risks such as high crude prices and the tightening of global financial conditions
  • India’s current account deficit widened to 1.9% of the gross domestic product (GDP) in 2017-18 and is expected to go up to 2.6% of GDP in the current year
  • The widening of the current account deficit is getting reflected in the depreciation of the rupee, which has fallen over 7% since the beginning of the year
  • External sector risks are getting amplified by the tightening of financial conditions in global markets

2. Domestic front

  • On the domestic front, there are risks such as the delay in addressing the twin balance sheet issue and possible revenue shortfall owing to GST implementation issues
  • The resolution of the twin balance sheet problem is a real challenge
  • Resolution or liquidation of distressed assets could result in large haircuts for banks
  • This will possibly increase the capital requirement of public sector banks and the government, with fiscal constraints, may find it difficult to spare resources
  • While the collection from GST is improving, it is still running below the desired rate of ₹1 trillion per month
  • Any compression in capital expenditure as a result of revenue shortfall will affect growth

Further measures required

  1. Even as important reforms have been implemented, more will be needed in areas like land and labour
  2. Labour market reforms could complement the GST in terms of promoting the formal economy and creating fiscal space for needed social and infrastructure spending
  3. Factor market reforms and greater formalization of the economy will push growth and generate higher tax revenue
  4. For now, the government should work on smoothening the IBC and GST and not allow electoral compulsions to affect fiscal management
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[op-ed snap] The urgent need for states to get fiscally fitop-ed snapPriority 1


Mains Paper 3: Economy | Mobilization of resources

From UPSC perspective, the following things are important:

Prelims level: Not much

Mains level: Deteriorating condition of state finances and need for reforms in economic planning


RBI state finances report

  1. The recent report, “State Finances: A Study of State Budgets 2018” by the Reserve Bank of India (RBI) confirms that the state of state finances is in “deep trouble” territory
  2. Even as the levers of India’s development increasingly shift to states, there has been a sharp and swift reversal of the assiduous fiscal consolidation by states over the previous decade

Rising problems of the states due to increased spending

  1. The share of states in development expenditure rose from about half of all development spending by the Centre and states in FY11 to over two-thirds by FY16
  2. Revenue deficit of states was up by 50%, from ₹40,500 crore in FY17 to ₹61,100 crore in FY18
  3. The 3% GFD/GSDP (gross state domestic product) threshold has been breached for three years in a row, with 19 states crossing the threshold in FY18
  4. Overall liabilities sans guarantees grew to 24% of GDP in FY18, the highest in the last five years, driven by the issuance of Ujwal Discom Assurance Yojana (Uday) bonds in FY16 and FY17, farm loan waivers and pay commission awards

Actions needed

1. Continued efforts to make the goods and services tax (GST) buoyant

  • Corrective actions since the GST was launched seem to be showing results, as reflected in an uptick in revenue recently
  • GST remains a work-in-progress and relentless attention is required to make good the promise of a simple, and distortion-free indirect tax regime for states to reap revenue buoyancy benefits sustainably

2. Unlocking resources for infra-spending through asset monetization

  • Earlier, CRISIL Advisory had pegged India’s infrastructure investment needs during FY18 and FY22 at ₹50 trillion, with states having to account for 35-40% of this
  • Asset monetization in sectors including state highways and power transmission could possibly help recycle capital into newer infrastructure spending without adding incremental debt
  • It will also crowd-in long-term private capital and bring efficiencies in management

3. Empowering city governments and public utilities

  • Municipal bonds have made a comeback with Pune, Hyderabad, and Indore tapping capital markets successfully
  • States should do more to empower cities to translate their economic potential into resource mobilization
  • The vicious cycle of low tariffs, poor services and institutional incapacitation needs to be tackled head-on
  • Differentiated tariffs, directed subsidy and universal services access ought to replace flat tariffs, universal handouts and poor services

4. Engendering a vibrant investment climate

  • While some strides have been made on the “doing business” front over the years, the bar needs to be raised beyond the promise of “single-window” clearance and red carpet to large investors
  • Expediting structural reforms to enable timely clearances, fair and effective land acquisition, and flexible labour markets will help sustainably scale-up sluggish private investment, which is showing early signs of a pick-up
  • A recalibrated public-private partnership programme with judicious risk allocation, contract enforceability, and consistent policy regime can further augment resources for infrastructure creation

5. Redressing agrarian stress durably through wholesome reforms

  • Loan waivers announced by states since 2014 amount to ₹1.69 trillion or roughly 14% of all incremental market borrowings by state governments during this period
  • The RBI attributes 40% of slippage in consolidated revenue expenditure in FY18 vis-à-vis budget to loan waivers
  • Durable transformation in agriculture calls for progressive policies for stable prices and market linkages, farm-level support, including on crop insurance, farm inputs, soil and crop advice, and investments in logistics, irrigation, and food processing

Way Forward

  1. Financially empowered and fiscally sound state governments are a prerequisite to lift India’s growth trajectory sustainably
  2. States will need to tackle the headwinds with speed, resolve and responsibility
  3. The time for states to get their act together on the fiscal front is now
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[pib] Invest IndiaPIBPrelims Only


From UPSC perspective, the following things are important:

Prelims level: Invest India

Mains level: Not Much



  1. Invest India and Business France has signed a MoU to promote investment facilitation and cooperation between startups of India and France.
  2. The goal will be to facilitate direct foreign investment by providing practical investment information to enterprises and support the companies pursuing those opportunities which contribute positively to economic growth of the two countries.

Invest India

  1. Invest India is the National Investment Promotion and Facilitation Agency of India and acts as the first point of reference for investors in India.
  2. It is set up as a nonprofit venture under the Department of Industrial Policy and Promotion, Ministry of Commerce and Industries, Government of India.
  3. Operationalized in early 2010, Invest India is set up as a joint venture company between the Department of Industrial Policy & Promotion (DIPP), Ministry of Commerce & Industry (35% equity), Federation of Indian Chambers of Commerce and Industry (FICCI) (51% equity), and State Governments of India (0.5% each).
  4. Thus, essentially, Invest India is a private company, unlike India Brand Equity Foundation – another investment promotion agency in India set up by the same Ministry – Ministry of Commerce & Industry.
  5. Invest India’s specialists provide multiple forms of support such as market entry strategies, deep dive industry analysis, partner search and location assessment, and policy advocacy with decision makers.
  6. Functions:
  • The core mandate of Invest India is investment promotion and facilitation.
  • It provides sector-specific and state-specific information to a foreign investor, assists in expediting regulatory approvals, and offers hand-holding services.
  • Its mandate also includes assisting Indian investors to make informed choices about investment opportunities overseas.
  • Its experts, specializing across different countries, Indian states and sectors, handhold investors through their investment lifecycle ⎯ from pre-investment to after-care.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Rescuing the rupee: A peek into the RBI’s arsenal


Mains Paper 3: Economy | Mobilization of resources

From UPSC perspective, the following things are important:

Prelims level: Not much

Mains level: Fall of the rupee in recent times and factors affecting its value

Rupee may slump further

  1. With the current-account deficit set to widen, thanks to higher oil prices and outflows from stocks and bonds, the rupee could be in for some more weakness
  2. Increasing the interest rate and burning billions in foreign reserves have done little to reverse the rupee’s standing as Asia’s worst-performing currency this year
  3. India could turn to other weapons in its arsenal if things deteriorate further

Factors affecting rupee

  1. Trade wars
  2. Sanctions on Iran
  3. Oil prices
  4. The US Fed rate decisions

Tools available with RBI

1 Raising rates

  • The Reserve Bank of India (RBI)hiked rates for the first time in four years in June and is likely to follow through in the coming months
  • Part of the reason behind a rate hike is to maintain stability on the rupee front
  • The central bank doesn’t target the exchange rate and attributes any rate moves to its goal of containing rising prices

2 Intervention

  • The RBI is suspected to have intervened regularly in the foreign exchange market
  • India’s foreign exchange reserves fall to $406 billion
  • Of these nearly $100 billion are in short-term debt, assets which the RBI considers are hot money and can leave the country anytime

Higher tariffs

  • The trade war is a new weapon in town
  • India, with its past experience of relying on higher duties to curtail imports, could use it to curb current-account deficit
  • In the aftermath of taper-tantrums in 2013, India hiked import duty on gold bullion and jewellery. That saw inflows shrink, helping narrow the current-account gap

Tap non-residents

  • One of the last resorts will be to turn to wealthy non-resident Indians to replenish precious foreign currency reserves
  • India has that option and also a sovereign bond issuance

Fight panic

  • Verbal intervention is always an option
  • RBI officer had said that India has sufficient “firepower” to deal with the rupee’s decline
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

India became third largest economy in 2011: World BankIOCRPriority 1


Mains Paper 3: Economy | Growth

From UPSC perspective, the following things are important:

Prelims level: International Comparison Program (ICP)

Mains level: India’s status in world trade and future prospects

Largest economy tag

  1. In a matter of six years, India emerged as the world’s third-largest economy in 2011 from being the tenth largest in 2005
  2. This data was released by the International Comparison Program (ICP), hosted by the Development Data Group at the World Bank Group

Major findings

  1. According to the ICP, six of the world’s 12 largest economies were in the middle-income category (based on the World Bank’s definition)
  2. The 12 largest economies accounted for two-thirds of the world economy and 59 per cent of the population
  3. The six largest middle-income economies — China, India, Russia, Brazil, Indonesia and Mexico — account for 32.3 per cent of world GDP, whereas the six largest high-income economies — US, Japan, Germany, France, UK and Italy — account for 32.9 per cent


International Comparison Program (ICP)

  1. ICP is a partnership of various statistical administrations of up to 199 countries guided by the World Bank
  2. The main partners of this program are the World Bank, IMF, UN, ADB, OECD, CISSTAT, Eurostat, AfDB ESCWA, ECLAC, DFID, ABS, IDB, NMoFA who are also all part of the executive board
  3. The Program produces internationally comparable price and volume measures for gross domestic product (GDP)
  4. Its component expenditures are based on purchasing power parities (PPP’s)
  5. The International Comparison Program holds surveys collecting price and expenditure data for the entire range of final goods and services at intervals of some few years (the last two were separated by six years)
  6. The ICP tries to make different countries GDPs comparable by calculating them in PPP both currency converters and spatial price deflators
  7. The ICP has published its PPP results eight times so far – the first time for 1970 (a preliminary study for 1967 was also carried out) and the latest for 2011
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

RBI flags States’ fiscal stressPriority 1


Mains Paper 3: Economy | Mobilization of resources

From UPSC perspective, the following things are important:

Prelims level: FRBM targets

Mains level: The continuous cycle of Farm loan waivers and its detrimental effect on economy

Risk of higher expenditure

  1. The Reserve Bank of India (RBI) has pointed to the fiscal stress that States are facing due to several factors including farm loan waivers
  2. In a report ‘State Finances: A Study of Budgets of 2017-18 and 2018-19,’ the central bank noted that States’ consolidated gross fiscal deficit (GFD) overshot the budget estimates in 2017-18 due to shortfalls in own tax revenues and higher revenue expenditure

What could this mean?

  1. Since the combined GFP to GDP was at 6.4% as compared with the Fiscal Responsibility and Budget Management Committee’s (FRBM) medium-term target of 5%, there is a risk that private investment gets crowded out of the finite pool of financial resources
  2. Risks are also likely to emanate from possible higher pre-election expenditure in more than 10 States and implementation of the balance pay commission awards
  3. With States continuing announcements and roll-out of farm loan waivers, the budgeted GFD could be at risk, and additional borrowing requirement could produce a concomitant impact on the already elevated borrowing yields

Effect of farm loan waivers

  1. These have a dampening impact on rural credit institutions
  2. Waivers impact credit discipline
  3. They vitiate credit culture and dis-incentivise borrowers to repay loans, thus engendering moral hazard
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[pib] Andhra Pradesh, Telangana and Haryana Top Rankers in Ease of Doing BusinessPIB


Mains Paper3: Indian Economy | Issues relating growth and development.

The following things are important from UPSC perspective:

Prelims: Ease of Doing Business

Mains level: Read the attached story


State Reform Exercise

  1. The State reform exercise under Ease of Doing Business in India is creating a lot of interest in other countries like Brazil, South Africa and Indonesia which proves that such reforms are imperative for improving the business and regulatory environment.
  2. Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry, released the final rankings of States in Ease of Doing Business.


  1. The top rankers are Andhra Pradesh, Telangana and Haryana.
  2. Jharkhand and Gujarat stood fourth and fifth respectively.

Feedback system to monitor the reach

  1. It is for the first time that DIPP has introduced taking feedback to ensure that the reforms have actually reached ground level.
  2. The feedback was collected through face-to-face interviews of actual users selected from more than 50,000 users of the services provided by the State and UT governments.
  3. DIPP organised numerous outreach programmes including 30 workshops and periodic video conferences with States and UTs.
  4. Another practice introduced in the current reform exercise was handholding support provided by the higher scoring States.

Business Reform Action Plan (BRAP)

  1. DIPP, Ministry of Commerce and Industry in collaboration with the World Bank conducted an annual reform exercise for all States and UTs under the Business Reform Action Plan (BRAP).
  2. The aim of this exercise is to improve delivery of various Central Government regulatory functions and services in an efficient, effective and transparent manner.
  3. States and UTs have conducted reforms to ease their regulations and systems in areas such as labour, environmental clearances, single window system, construction permits, contract enforcement, registering property and inspections.
  4. States and UTs have also enacted the Public Service Delivery Guarantee Act to enforce the timelines on registrations and approvals.
  5. The current assessment under the BRAP 2017 is based on a combined score consisting of Reform evidence score that is based on evidence uploaded by the States and UTs and Feedback score that is based on the feedback garnered from the actual users of the services provided to the businesses.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

IMF suggests India three steps to sustain high growth ratePriority 1


Mains Paper 2: IR | Important International institutions, agencies & fora, their structure, mandate

From UPSC perspective, the following things are important:

Prelims level: International Monetary Fund

Mains level: Steps that need to be taken to sustain high growth momentum in India

Projections for India

  1. The International Monetary Fund suggested India can sustain high growth rate by carrying out banking sector reforms, simplifying and streamline GST, and renewing impetus on reforms
  2. Growth is projected at 7.4% in FY 2018-19 and 7.8 percent in FY 19-20, respectively

Suggested measures

To revive a bank credit and enhance the efficiency of credit provision

  • by accelerating the cleanup of the bank and corporate balance sheets and enhancing the governance of public sector banks

To continue fiscal consolidation and to lower elevated public debt levels

  • This needs to be supported by simplifying and streamlining the goods and services tax (GST) structure

Over the medium-term, renew impetus to reforms of key markets

  • Labor and land, as well as improving the overall business climate would be crucial to improving competitiveness maintaining high level of growth in India
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

RBI steps in as rupee hits record lowPriority 1


Mains Paper 3: Economy | Effects of liberalization on the economy

From UPSC perspective, the following things are important:

Prelims level: RBI tools for maintaining the value of rupee, current vs capital account convertibility

Mains level: Impact of global factors on the price of Indian currency & overall economy

Rupee hits a record low

  1. The rupee breached the 69-a-dollar mark for the first time ever in early trade
  2. This prompted the central bank to intervene in the currency market that enabled the domestic unit to cut losses
  3. It is estimated to have sold dollars about $700-800 million through state-owned banks

Reasons for fall of rupee

  1. Rising crude oil prices
  2. Looming trade war fears
  3. Capital outflows from the emerging markets
  4. Markets were partly under pressure due to the derivatives expiry

RBI intervention

  1. India’s $ 413 billion foreign exchange reserves act as a cushion
  2. RBI intervenes to cut volatility in currency prices


Read more about Capital & Current account convertibility here:

Capital and Current Account Convertibility in India

Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[op-ed snap] Tighter is betterop-ed snapPriority 1


Mains Paper 3: Economy | Effects of liberalization on the economy

From UPSC perspective, the following things are important:

Prelims level: Current account deficit, Fiscal profligacy

Mains level: Risks associated with India’s CAD and factors affecting it


Sudden reversal of capital flows

  1. Since April, emerging markets (EMs) have been rudely shocked by the sudden reversal of capital flows without any apparent change in economic fundamentals
  2. Financial buffers in EM are much stronger today than they were before the 2013 taper tantrum

Which economies are under pressure?

  1. The ones with large current account deficits and, in turn, high foreign borrowing
  2. Why? There has been a steady decline in policy space because of loose fiscal and, in some cases, monetary policy
  3. Without adequate policy space, the buffers have turned ineffective

Factors influencing Capital inflows

  1. The growth differential with developed markets (DM)
  2. The strength of the US dollar
  • Higher EM-DM growth differential increases inflow, a stronger US dollar lowers it
  • Why? Investing in EM is riskier, higher growth will compensate the risk
  • A stronger dollar raises the cost of funding and therefore investors scale back investment

What happened in April 2018?

  1. Incoming data from the Euro Area and Japan pointed to growth disappointment, but above par growth in the US
  2. The altered dynamics forced the market to reprice US interest rates and the dollar
  3. The consequent tightening of global financial conditions caught investors off guard
  4. Capital outflows from EM ensued and their currencies depreciated

Why are economies struggling even after having buffers?

  1. Along with buffers, Foreign exchange liabilities have also risen and there are limits to the use of reserves
  2. In several, if not all, vulnerable economies, the current account deficit is rising because of growing fiscal and quasi-fiscal deficits
  3. Fiscal profligacy is restraining the space for the economies to grow without increasing foreign borrowing

What needs to be done?

  1. If an EM economy is to maintain or widen the growth differential with DM, it needs to grow faster, requiring more funding
  2. If the government does not reduce its deficit to provide the additional funds, the private sector is forced to borrow more externally, that is, the current account deficit has to widen
  3. The way out is to tighten fiscal policy, even when it might not have been part of the problem so that the private sector has the domestic space to grow

Risks for India

  1. India’s overall fiscal deficit (Centre plus state) has remained virtually constant, around 7 percent of GDP since 2013-14
  2. This year also, both the Centre and state deficits are likely to be under pressure with GST collections running below the budgeted run rate
  3. A continued decline in private investment in last 4 years provided the excess domestic savings needed to keep the current account deficit (foreign borrowing) contained at around 1 percent
  4. With the higher budgeted fiscal deficit, even the hint of a recovery in private investment is raising fears of the current account deficit rising sharply

Way forward

  1. Loose fiscal and monetary policies pushed India to the brink of crisis in 2013
  2. If India doesn’t tighten fiscal and monetary policies early and sufficiently, then it too could be heading down the path of its peers
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[op-ed snap] Has the Indian economy caught the Dutch disease?op-ed snap


From UPSC perspective, the following things are important :

Prelims level :  “Dutch Disease”, Trends in CAD, Fragile Five

Mains level : Impact of rising crude oil prices on CAD, fiscal deficit, etc.


Mains Paper 3: Economy | Indian Economy

From UPSC perspective, the following things are important:

Prelims level: “Dutch Disease”, Trends in CAD, Fragile Five

Mains level: Impact of rising crude oil prices on CAD, fiscal deficit, etc.


Rising crude oil prices

  1. Crude Oil Prices are 50% up over the last nine months.
  2. With India particularly sensitive to oil, the combination of higher oil and global turbulence has inevitably raised questions about India’s preparedness to deal with global stress. This raises following questions:
  • How much more insulated is India?
  • Is there any risk of a 2013 repeat, when India was part of the “Fragile Five”?

Emerging pressures

  1. India’s current account deficit (CAD) is on course to triple to 2% of gross domestic product (GDP) in 2017-18—even though crude prices averaged just $57 per barrel last fiscal—affected by underperforming exports and over-performing imports.
  2. Now, if crude prices were to average $75 per barrel in 2018-19, we estimate the CAD would widen towards 3% of GDP or $80 billion
  3. Over the last five years, even as oil prices collapsed and India’s fiscal reaped a large windfall, the consolidated deficit has not witnessed any meaningful reduction
  4. While the Centre has reduced its deficit, states have increased theirs, such that the consolidated deficit has only inched down from 6.9% to 6.5% over the last five years

Rise in Crude Oil Prices: Implications on India’s CAD

  1. The collapse in oil prices in 2014 served as a large, positive terms-of-trade shock for India.
  2. India witnessed large gains from the collapse in oil prices (3.1% of GDP across two years, of which two-thirds was estimated to have been spent).
  3. So the collapse in oil prices should have put upward pressure on actual and equilibrium real exchange rates.
  4. The only choice policymakers had was whether to accommodate this real appreciation through nominal appreciation or relatively higher inflation.
  5. Operationally, this manifested itself in a collapse of the CAD (because of oil) and therefore a larger balance of payments surplus that was putting upward pressure on the rupee.
  6. This was compounded by foreign direct investment flows almost doubling after this government came to the power. All this exacerbated the rupee appreciation pressures.

What is Dutch Disease?

  1. The 20% real appreciation between 2014 and 2017— reflecting this positive terms-of-trade shock—has impinged on the competitiveness of India’s manufacturing sector (exports and import competitors) and therefore contributed to the deterioration of underlying balances.
  2. India likely caught the “Dutch disease”—a term that describes the Netherlands in the 1960s where a discovery of gas deposits in the North Sea and the income boom that followed, led to a real appreciation of the exchange rate that crowded out manufacturing exports.
  3. In India’s case, the analogy is the collapse in oil prices resulted in a large, positive terms-of-trade shock that was largely spent, drove up the actual and equilibrium real exchange rate which, in turn, has affected the competitiveness of India’s tradable sector.

Policy Implications

  1. Firstly, policymakers should not fight this real depreciation since it’s an equilibrium phenomenon, but simply use reserves to ensure the new equilibrium is reached in a gradual manner, so as to avoid self-fulfilling panic and overshooting.
  2. Second, there are bound to be inflationary consequences of the rupee depreciation. Under the new inflation-targeting framework, this will need to be countered by monetary tightening.
  3. So, external stress will need to be buffered through a weaker currency and higher rates, as is being witnessed all around the world.
  4. Third, it is crucial that fiscal policy (at the Central and states) does not slip again.
  5. The more expansive the fiscal policy, the more it will offset the real depreciation that will occur from the positive terms-of-trade shock reversing, and thereby hurt the competitiveness of the tradable sector.
  6. Fourth, policymakers need to continue working on improving underlying trade competitiveness, apart from exchange rate, by boosting infrastructure, total factor productivity and assimilating into global value chains.

The Way Forward

  1. India is much more fortified than in 2013, but that should not mask the fact that underlying, external imbalances have widened.
  2. The recent rise in crude prices and the real depreciation that it will induce may well be a blessing in disguise, because it may help improve underlying competitiveness.
  3. But the scale of what needs to be done to improve trade competitiveness, more fundamentally, remains daunting and should be underestimated only at our own peril.


Fragile Five

  1. Fragile Five is a term coined in August 2013 by a financial analyst at Morgan Stanley to represent emerging market economies that have become too dependent on unreliable foreign investment to finance their growth ambitions.
  2. The acronym follows a long line of analyst acronyms that have caught on over the years, including Jim O’Neill’s BRICS and MINTS acronyms.
  3. As capital flows out of emerging markets to developed markets, many of their currencies experienced significant weakness and made it difficult to finance current account deficits.
  4. The lack of new investment also made it impossible to finance many growth projects, which contributed to a slowdown in their respective economies. This created a potential issue for certain vulnerable economies.
  5. The five members of the Fragile Five include:
  • Turkey
  • Brazil
  • India
  • South Africa
  • Indonesia
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Centre to start measuring ‘green GDP’ of States


From UPSC perspective, the following things are important :

Prelims level : Green GDP, Particulars of the Initiative

Mains level : Importance of sustainable development


Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From UPSC perspectives, following things are important:

Prelims level: Green GDP, Particulars of the Initiative

Mains level: Importance of sustainable development


Green GDP calculation for States

  1. India’s environmental diversity and riches are universally recognised but have never been quantified.
  2. Starting this year, the government will begin a five-year exercise to compute district-level data of the country’s environmental wealth.
  3. The numbers will eventually be used to calculate every State’s ‘green’ Gross Domestic Product (GDP).
  4. The metric will help with a range of policy decisions, such as compensation to be paid during land acquisition, calculation of funds required for climate mitigation, and so on.

What’s so special?

  1. This is the first time such a national environment survey is being undertaken.
  2. A pilot project is set to begin this September in 54 districts.
  3. The land will be demarcated into “grids” with about 15-20 grids per district.
  4. These will capture the diversity in the State’s geography, farmland, wildlife, and emissions pattern, and will be used to compute a value.
  5. For instance, there’s a no-go zone, we need to calculate what its economic impact.
  6. Much of the data required for the inventory would be sourced from datasets that already exist with other government ministries.

Launching “Green Skilling Programme”

  1. The government has also launched a ‘green skilling’ programme under which youth, particularly school dropouts, would be trained in a range of ‘green jobs’— as operators of scientific instruments used to measure environmental quality, as field staff in nature parks, and as tourist guides.
  2. Some of the labour required for the survey would also be sourced from the green-skilled workforce.


Green GDP

  1. Green GDP is a term used for expressing GDP after adjusting for environment degradations.
  2. Green GDP is an attempt to measure the growth of an economy by subtracting the costs of environmental damages and ecological degradations from the GDP
  3. The concept was first initiated through a System of National Accounts.
  4. The System of National Accounts (SNA) is an accounting framework for measuring the economic activities of production, consumption and accumulation of wealth in an economy during a period of time.
  5. When information on economy’s use of the natural environment is integrated into the system of national accounts, it becomes green national accounts or environmental accounting.
  6. The process of environmental accounting involves three steps viz. Physical accounting; Monetary valuation; and integration with national Income/wealth Accounts:
  • Physical accounting determines the state of the resources, types, and extent (qualitative and quantitative) in spatial and temporal terms.
  • Monetary valuation is done to determine its tangible and intangible components.
  • Thereafter, the net change in natural resources in monetary terms is integrated into the Gross Domestic Product in order to reach the value of Green GDP
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Fitch maintains India sovereign rating with stable outlook


Mains Paper 3: Economy | Growth

From UPSC perspective, the following things are important:

Prelims level: Sovereign rating

Mains level: India’s fiscal consolidation targets and their impact on sovereign rating and economy


No change in rating

  1. Global rating agency Fitch Ratings has not upgraded India’s sovereign rating
  2. Agency maintained its lowest investment grade rating at BBB-, with a stable outlook

Why status quo?

  1. It blamed weak fiscal finances and some lagging structural factors, including governance standards and a still difficult, but improving, business environment for its rating action

What needs to be done for rating upgrade?

  1. India can expect a rating upgrade if it reduces general government debt over the medium term to a level closer to that of rated peers at 41% of GDP and maintains higher sustained investment and growth rates without the creation of macro imbalances

Other ratings

  1. Last year, Moody’s Investors Service raised India’s sovereign rating from the lowest investment grade of Baa3 to Baa2 and changed the outlook to stable from positive
  2. Standard and Poor’s kept its India rating unchanged at the lowest investment grade of BBB-, with a stable outlook


Sovereign rating

  1. A credit rating is an evaluation of the credit risk of a prospective debtor (an individual, a business, company or a government), predicting their ability to pay back the debt, and an implicit forecast of the likelihood of the debtor defaulting
  2. A sovereign credit rating is the credit rating of a sovereign entity, such as a national government
  3. The sovereign credit rating indicates the risk level of the investing environment of a country and is used by investors when looking to invest in particular jurisdictions, and also takes into account political risk
  4. Obtaining a good sovereign credit rating is usually essential for developing countries in order to access funding in international bond markets
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

‘India expected to grow at 7.4% in 2018’


Mains Paper 3: Economy | Growth

From UPSC perspective, the following things are important:

Prelims level: International Monetary Fund (IMF), World Economic Outlook (WEO)

Mains level: India’s growth rate in recent years and factors affecting it

IMF forecast

  1. The International Monetary Fund (IMF), in the latest World Economic Outlook (WEO), has projected India to grow at 7.4% in 2018 and 7.8% in 2019
  2. The latest IMF growth rate projection remains unchanged since the last one in October

Inclusiveness challenge

  1. An important challenge for India is to enhance inclusiveness
  2. India’s high public debt and recent failure to achieve the budget’s deficit target, calls for continued fiscal consolidation into the medium term to further strengthen fiscal policy credibility
  3. The main priorities for lifting constraints on job creation and ensuring that the demographic dividend is not wasted are to ease labour market rigidities, reduce infrastructure bottlenecks, and improve educational outcomes
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[op-ed snap] Is the Indian economy prepared for the next global shock?op-ed snap


Mains Paper 3: Economy | Effects of liberalization on the economy, changes in industrial policy & their effects on industrial growth

From UPSC perspective, the following things are important:

Prelims level: Fragile Five, Current account deficit, NPA, external commercial borrowings

Mains level: State of Indian economy


The 2013 rupee shock

  1. The rupee tumbled after the US Federal Reserve indicated in May 2013 that it would soon begin to cut back on monetary expansion
  2. India was then hobbled with an overvalued exchange rate, inadequate foreign exchange reserves, a record current account deficit, runaway inflation, and a massive fiscal deficit
  3. This placed India in ‘Fragile Five’ group along with Brazil, Turkey, South Africa and Indonesia

India is now not fragile but still vulnerable

There are three main risks to economic stability right now

  1. Interest rate normalization in the US
  • Quantitative tightening would send US bond yields shooting up
  • US monetary tightening usually reduces capital flows into emerging markets
  • The Indian current account deficit has also begun to widen
  • But RBI has record foreign exchange reserves built through several years of intervention in the currency market to defend the rupee in case there is a run on the Indian currency

2. Headwinds from China’s slowing growth

  • The clampdown on smoke and the move towards clean energy is hampering the Chinese manufacturing sector
  • The upsurge in producer price inflation that bolstered the profits of state-owned enterprises last year is deteriorating
  • Countries exposed to a China growth slowdown (through exports) may face a huge blow
  • Exports from India to China and Hong Kong constitute about 10% of the total Indian exports, so India may not see a drastic impact despite the sputtering of China’s growth engines

3. Escalating trade war

  • Retaliatory moves by big countries could hurt the exports of countries that participate in the sophisticated system of global value chains
  • The US accounts for only around 10% of India’s steel and aluminum exports, which limits the material impact of such a tariff on India’s trade

Four worries for the Indian economy

  1. Widening CAD
  • Current account deficit is likely to widen up to 2% of gross domestic product (GDP) in 2018, from 1.7% in 2017
  • A higher current account deficit could make the economy vulnerable to sudden capital stops

2. Banking crisis

  • The sluggish pace of bad debt resolution and the growing cases of bank frauds make the economy susceptible to confidence loops
  • India could be entering a freshly brewed cycle of NPAs
  • This would necessitate larger-than-earmarked capital infusion, consequently leading to a further pushing back of fiscal consolidation goals

3. Increasing foreign liabilities

  • Most of the rise in long-term external debt is because of the increase in external commercial borrowings by companies
  • There are limits to how much the Indian central bank can intervene to absorb these capital flows, given the risks that India could then be tagged a currency manipulator by the US
  • Heavy currency intervention could increase the risk of trade sanctions from the US

4. Political risks

  • Important state elections are scheduled in 2018 followed by a national election in 2019
  • There could be strong incentives to abandon macro stability in favor of spending programmes that lead to a deterioration in public finances

Way forward

  1. The Indian economy seems to be better placed to deal with global shocks than it was in July 2013
  2. There may be no reason to panic but policymakers should stay on guard
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Why the fuss about fiscal deficit?

Image source


Mains Paper 3: Economy | Mobilization of resources

From UPSC perspective, the following things are important:

Prelims level: Fiscal deficit, Nominal GDP, CSO, FRBM Act,

Mains level: Fiscal consolidation roadmap and constraints in its implementation

Why is fiscal deficit so important?

  1. It is quite difficult to comprehend why all hell must break loose, if the fiscal deficit turns out to be 3.5% for the year, instead of 3.2%
  2. The fiscal deficit paints a more complimentary picture of government finances than necessary because it counts both one-off receipts (from asset sales, recovery of loans etc) and recurring items (taxes) as part of the government’s ‘income’

Expenses overshoot

  1. In FY18, the Centre’s total income (as per the revised estimates) from taxes, non-tax revenues, and capital items is estimated at ₹16.23 lakh crore
  2. But it expects to incur a total expenditure of ₹22.17 lakh crore
  3. Expenditure will thus overshoot income by about 36.5%, leaving a shortfall of ₹5.94 lakh crore
  4. This ₹5.94 lakh crore shortfall is euphemistically termed as the fiscal deficit

How is it measured in terms of GDP?

  1. When it is expressed as a percentage of India’s nominal GDP (₹167 lakh crore as per latest CSO estimates), it appears at 3.5%
  2. A 30-basis point overshoot in the deficit means a ₹50,000 crore hole in the Budget
  3. This tells that why even a minor slippage in the fiscal deficit is so keenly watched
  4. This is indeed why there’s a Fiscal Responsibility and Budget Management (FRBM) Act which enjoins the government to steadily tighten its fiscal and revenue deficits over the years while reining in its debt-GDP ratio

Effect on various sectors

  1. When the Centre ends up spending more than it earns, it takes recourse to market borrowings to bridge the gap
  2. The borrowing target for the year is closely watched by the bond market because the larger the government’s loan-taking, the less room for other borrowers
  3. The bulk of the expenditure each year is absorbed by just three recurring items — interest payments, pensions, and subsidies

What needs to be done?

  1. For India’s government to be really able to launch bold new schemes or make a difference to citizens’ welfare, it needs to clean up its finances first
  2. It needs to pare down debt, save on interest payouts, reduce pensions and subsidies and raise asset creation
  3. It must also ensure that its receipts grow at a far faster pace than expenses in future so that the debt can be paid down


Fiscal Responsibility and Budget Management (FRBM) Act

  1. The objective of the Act is to ensure inter-generational equity in fiscal management, long-run macroeconomic stability, better coordination between fiscal and monetary policy, and transparency in fiscal operation of the Government
  2. FRBM became an Act in 2003
  3. FRBM Act provides a legal-institutional framework for fiscal consolidation
  4. The FRBM rule specifies reduction of fiscal deficit to 3% of the GDP by 2008-09 with annual reduction target of 0.3% of GDP per year by the Central government
  5. Similarly, revenue deficit has to be reduced by 0.5% of the GDP per year with complete elimination to be achieved by 2008-09
  6. It is the responsibility of the government to adhere to these targets. The Finance Minister has to explain the reasons and suggest corrective actions to be taken, in case of a breach
  7. The Government can move away from the path of fiscal consolidation only in case of natural calamity, national security and other exceptional grounds which Central Government may specify
  8. The Act prohibits borrowing by the government from the Reserve Bank of India, thereby, making monetary policy independent of fiscal policy
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Plan on revenue deficit seen as shift towards consumption spending


Mains Paper 3: Economy | Mobilization of resources

From UPSC perspective, the following things are important:

Prelims level: Revenue deficit, FRBM framework, N.K. Singh Committee

Mains level: Fiscal consolidation roadmap of India

Targets on revenue deficit not to be set

  1. The Union budget has proposed to stop setting targets on revenue deficit reduction from next year
  2. This will be done through an amendment in the Fiscal Responsibility and Budget Management (FRBM) framework

What might this lead to?

  1. This may sway government’s expenditure more towards consumption spending away from more productive capital expenditure
  2. FRBM Act was to force government from switching from consumption to capital expenditure
  3. This will have serious implication not only on GDP growth but also on achieving public debt target

N.K. Singh Committee recommendations

  1. There was extensive discussion on whether to target revenue deficit or not
  2. Majority of members agreed that revenue deficit needed to be brought down gradually
  3. It recommended reduction of revenue deficit by 25 basis points every year to bring it down to 0.8% by 2023-24 without eliminating it completely

Why this recommendation?

  1. Borrowing for expenditures that are to be incurred year after year is neither desirable nor sustainable
  2. These should be tax-financed
  3. This is the basis of the commonly known as the golden rule of fiscal policy



  1. The revenue deficit broadly measures the extent of borrowings used for revenue expenditure
  2. Fiscal deficit measures the overall borrowing to finance both revenue account deficit as well as capital account deficit
  3. Effective revenue deficit measures the revenue deficit minus grants to states for the creation of capital assets
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

The Economic Survey: an overview

Image source


Mains Paper 3: Economy | Indian Economy Issues relating to planning

From UPSC perspective, the following things are important:

Prelims level: Big data, GST, EPFO, ESIC

Mains level: Important findings from Economic survey


Big Data mined to shed light on the economy

  1. The Economic survey has used Big data to get some epiphanic understanding of economy
  2. The data from the implementation of the GST was combined with the availability of detailed new data from the Employees’ Provident Fund Organization (EPFO) and the Employees’ State Insurance Corporation (ESIC)
  3. This gave insights about external and internal trade in the aggregate and state-wise manner
  4. Also, the size and distribution of the tax net, and levels of formality and informality

Supporting end of violence against women

  1. The colour of this year’s survey cover was chosen as a symbol of support for the growing movement to end violence against women
  2. There is a deep societal meta-preference in favour of sons
  3. Empowering women with education and reproductive and economic agency are critical challenges for the Indian economy

Important questions raised by Economic survey

  1. Can we expect the current investment slowdown to reverse quickly based on an understanding other countries’ experience?
  2. Do second and third tiers of government collect the direct taxes that they are empowered to?
  3. Why should we focus on the sex ratio of the last child?
  4. Under what conditions, to what extent, and where will the agricultural impact of climate change be most felt?
  5. Should the government and judiciary agree to a cooperative separation of powers like the Centre and states do in the form of cooperative federalism to improve the conditions of doing business?
  6. Should there be a number of science and technology missions to propel India to the ranks of the world’s top knowledge producers?


Big Data

  1. Big data is data sets that are so voluminous and complex that traditional data processing application software are inadequate to deal with them
  2. Lately, the term “big data” tends to refer to the use of predictive analytics, user behaviour analytics, or certain other advanced data analytics methods that extract value from data
  3. Analysis of data sets can find new correlations to “spot business trends, prevent diseases, combat crime and so on
  4. Big Data philosophy encompasses unstructured, semi-structured and structured data, however the main focus is on unstructured data
  5. Multidimensional big data can also be represented as tensors, which can be more efficiently handled by tensor-based computation
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Budget 2018: Govt may assume 12% nominal GDP growth rate for 2018-19


Mains Paper 3: Economy | Growth

From UPSC perspective, the following things are important:

Prelims level: Nominal GDP, Fiscal deficit, Central Statistics Office (CSO), goods and services tax (GST), fiscal consolidation roadmap, N.K. Singh committee, 15th Finance Commission

Mains level: India’s fiscal consolidation path and challenges in achieving the desired results

High growth rate to be assumed

  1. The finance ministry may assume a much higher nominal gross domestic product (GDP) growth rate—around 12%—for 2018-19
  2. This may help it project a rosier fiscal deficit number in the budget
  3. The figure compares with a nominal GDP growth rate of 9.5% estimated by the Central Statistics Office (CSO) for 2017-18

Estimates for present fiscal year

  1. FM had assumed nominal GDP growth of 11.75% for the 2017-18 fiscal year in his last budget
  2. Estimates put out by the Central Statistics Office showed nominal GDP may grow only by 9.5% during the year

Why fiscal deficit may widen?

  1. The lower-than-anticipated nominal GDP growth will lead to “marginal slippage” in the fiscal deficit target for 2017-18
  2. The government has increased its spending through supplementary demands for grants and has communicated that it may borrow Rs50,000 crore more by 31 March, the actual fiscal slippage could be more
  3. Indirect tax revenue has taken a hit as collections under the goods and services tax (GST) have been less than anticipated

New fiscal consolidation roadmap to be deferred

  1. The finance ministry has signalled that it may defer implementing the new fiscal consolidation roadmap recommended by the N.K. Singh committee by two years
  2. Ministry has tasked the 15th Finance Commission to dwell on the matter
  3. The Committee’s recommendations on fiscal discipline were supposed to come into force in the next fiscal year starting April
  4. The 15th Finance Commission’s recommendations will be implemented starting April 2020


Nominal GDP

  1. GDP is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period
  2. Nominal GDP is gross domestic product (GDP) evaluated at current market prices
  3. The main difference between nominal and real values is that real values are adjusted for inflation, while nominal values are not
  4. As a result, nominal GDP will often appear higher than real GDP
  5. Nominal GDP is used as the base to calculate key fiscal indicators such as the fiscal deficit, revenue deficit and debt-to-GDP ratio that are used to gauge fiscal health
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

GDP growth seen slowing to 4-year low of 6.5% in 2017-18

Image source


Mains Paper 3: Economy | Growth

From UPSC perspective, the following things are important:

Prelims level: GDP, Gross Value Added (GVA), Central Statistics Office (CSO), Purchasing Managers’ Index

Mains level: Factors affecting economic growth

GDP growth decelerating

  1. The Central Statistics Office (CSO) forecast that GDP growth in the current financial year ending March 31 will slow to a four-year low of 6.5%
  2. This will be down from the provisional 7.1% pace seen in 2016-17
  3. Growth will be dragged down by deceleration in the agriculture and manufacturing sectors

Advance estimates for National Income

  1. According to the first advance estimates of national income by CSO for 2017-18 Gross Value Added (GVA) was also projected to expand by 6.1% in 2017-18, slowing from 6.6% in the preceding fiscal year
  2. The CSO’s GVA full-year growth estimate of 6.1%, compares with a 6.7% pace that the Reserve Bank of India had forecast at its December policy meeting
  3. The central bank had at the time flagged rising oil prices and “shortfalls in kharif production and rabi sowing” as posing downside risks to the outlook for GVA growth
  4. The GVA growth rate for ‘agriculture, forestry, and fishing’ is expected to slow sharply to 2.1%, compared with the previous year’s 4.9% pace

Base effect in agriculture

  1. It is a base effect in agriculture because last year saw a very high growth rate as it followed two years of drought
  2. The Base effect relates to inflation in the corresponding period of the previous year
  3. If the inflation rate was too low in the corresponding period of the previous year, even a smaller rise in the Price Index will arithmetically give a high rate of inflation now

GDP growth will become more robust in 2018-19

  1. The optimism is due to  the momentum seen in the core sector growth, PMI indices and developed world economies
  2. The manufacturing PMI (Purchasing Managers’ Index) has been showing an uptick in manufacturing and now has a reading at a five-year high of 54
  3. Further wearing off of the demonetization related residual effects as well as progressively stabilizing the transitionary effects of GST is likely to support the higher growth rate estimates
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Govt. to borrow more; fiscal deficit may widen


Mains Paper 3: Economy | Growth

From UPSC perspective, the following things are important:

Prelims level: Fiscal deficit, government bonds, treasury bills, fiscal consolidation

Mains level: Effects of fiscal slippage on overall economy

Centre plans to raise additional ₹50,000 cr.

  1. The Centre has decided to borrow an additional ₹50,000 crore in the last three months of this financial year
  2. This move could result in the government missing its budgeted fiscal deficit target of 3.2% of GDP

Offset of T-Bills

  1. The Government will raise additional market borrowings of ₹50,000 crore only in fiscal FY18 through dated government securities
  2. The additional borrowing, which would be done through government bonds would be offset by trimming T-Bills (treasury bills) from ₹86,203 crore to ₹25,006 crore
  3. The Government will thus, between now and March 2018, not be raising any net additional borrowing (T-Bills will be run down by ₹61,203 crore and additional G-Sec borrowing will be ₹50,000 crore)

Effects of fiscal slippage

  1. Given the uncertainties on the external front, GST collection, revenue collection etc, 3.5% fiscal deficit looks imminent
  2. Any slippage from the fiscal deficit target this year could have a knock-on effect on the overall fiscal consolidation efforts


Treasury bills

  1. These are government bonds or debt securities with a maturity of less than a year
  2. T- bills are issued to meet short-term mismatches in receipts and expenditure
  3. Bonds of longer maturity are called dated securities
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

No room for fiscal boost for rest of the year

Image source


Mains Paper 3: Economy | Growth

From UPSC perspective, the following things are important:

Prelims level: Capital and revenue expenditure, Fiscal and revenue deficit

Mains level: Fiscal consolidation by government and challenges in meeting its targets


Government expenditure outpacing revenue

  1. The central government stepped up its capital spending in October 2017, with the result that its total capex this year till end-October was Rs1.6 trillion, compared to Rs1.2 trillion in the same period last year
  2. The boost to revenue expenditure is even more this fiscal year; till end-October it is Rs1 trillion more than last year
  3. The fiscal deficit was higher by Rs1 trillion compared to last year and is 96.1% of this year’s budgeted amount
  4. The revenue deficit is 124.7% of the budgeted amount

What do these figures indicate?

  1. The government has already given a substantial boost to the economy
  2. The government must either curb its expenditure or miss its fiscal deficit target
  3. There’s no question of the central government providing a fiscal boost in the remaining part of the fiscal year
  4. The private sector will therefore have to pick up the slack


Read more about government budget and deficits here: Click2read

Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Govt may delay implementation of N.K. Singh’s FRBM report


Mains Paper 3: Economy | Growth

From UPSC perspective, the following things are important:

Prelims level: Fiscal consolidation, 15th Finance Commission, debt-to-GDP ratio, FRBM Act, fiscal council

Mains level: Fiscal consolidation path taken by India and its effects


Delay in implementing the new fiscal consolidation roadmap 

  1. The finance ministry may have pushed back implementing the new fiscal consolidation roadmap recommended by the N.K. Singh committee by two years
  2. It asked the 15th Finance Commission to dwell on the same matter
  3. This could mean putting off meeting the fiscal deficit target of 3% of GDP for 2018-19 by a year or two

New timeline

  1. The N.K. Singh committee recommendations on fiscal discipline were supposed to come into force in the next fiscal starting April 2018
  2. The 15th Finance Commission recommendations will be implemented starting April 2020

Terms of reference of 15th Finance Commission

  1. The Commission shall review the current status of the finance, deficit, debt levels, cash balances and fiscal discipline efforts of the Union and the states
  2. It will recommend a fiscal consolidation road map for sound fiscal management
  3. This will be done by taking into account the responsibility of the central government and state governments to adhere to appropriate levels of general and consolidated government debt and deficit levels

Recommendations of FRBM Committee

  1. The fiscal responsibility and budget management (FRBM) review committee had recommended a fundamental shift in fiscal consolidation by targeting overall government (states+centre) debt, which the rating agencies track rather than the current practice of focusing on the centre’s fiscal deficit
  2. The FRBM review committee had recommended a debt-to-GDP ratio of 38.7% for the central government, 20% for the state governments together and a fiscal deficit of 2.5% of GDP, by financial year 2022-23
  3. The FRBM review panel had also recommended enacting a new Debt and Fiscal Responsibility Act after repealing the existing Fiscal Responsibility and Budget Management (FRBM) Act
  4. And creating a fiscal council that would monitor the government’s fiscal announcements for any year, provide its own forecasts and analysis, and advise the ministry on when to trigger the escape clause provision

Meeting the fiscal deficit target is a challenge

  1. Due to the structural reforms such as implementation of the goods and services tax (GST)
  2. There could be a shortfall in non-tax revenue collection due to lower dividend transferred by the Reserve Bank of India (RBI) and lower telecom spectrum proceeds
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

After Moody’s, all eyes on S&P, Fitch Ratings


Mains Paper 3: Economy | Growth

From UPSC perspective, the following things are important:

Prelims level: Various rating agencies, debt-to-GDP ratio, fiscal deficit

Mains level: Various measures being taken by government to improve ease of doing business as well as improve India’s fiscal position


India’s rating upgrade by Moody’s

  1. Rating agency Moody’s upgraded India’s sovereign rating after a gap of almost 14 years
  2. The attention is now on the other two global rating agencies, Standard & Poor’s and Fitch Ratings

Chief Economic Advisor’s views

  1. Chief Economic Adviser Arvind Subramanian hopes that rating agencies might not be inconsistent amongst each other
  2. Dr. Subramanian had earlier observed that ratings agencies followed inconsistent policies while rating India as opposed to awarding ratings to China

S&P’s view about the upgrade

  1. In October, S&P had said the country needed to improve its fiscal position for a rating upgrade
  2. For an upgrade, India would have to address its weak fiscal balance sheet and weak fiscal performance
  3. India has one of the highest general government debt-to-GDP levels (68%) among emerging market sovereigns
  4. A potential rating upgrade is likely to come from improved fiscal performance

Government’s limitations

  1. Year after year, the fiscal deficit remains relatively large with the interest burden and subsidies taking a big chunk of government spending
  2. So there’s not a lot of room for the government to maneuver, despite pressing infrastructure needs
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Fiscal deficit hits 91.3% of FY18 target in 6 months


Mains Paper 3: Economy | Mobilization of resources

From UPSC perspective, the following things are important:

Prelims level: Fiscal deficit, Controller General of Accounts

Mains level: Impact of GST and demonetization on economy

Data released by the Controller General of Accounts (CAG)

  1. In the first six months of the current financial year, the country’s fiscal deficit touched 91.3 percent of the full-year budget estimate
  2. During the same period in the previous fiscal year, this figure was 83.9 percent
  3. In addition to the annual deficit, the national debt – the accumulation of past deficits and interest due to lenders to the Treasury – now exceeds trillion

Slippage of Fiscal deficit target might occur

This will be due to lower-than-budgeted revenues, which are because of

  1. uncertainty related to the buoyancy of indirect taxes post-GST, revenues from telecom and disinvestment flows
  2. lower surplus transferred by the RBI


Fiscal Deficit and Primary Deficit

Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

India’s GVA growth may rise to 6.3 pc in Sep quarter: Nomura


Mains Paper 3: Economy | Growth

From UPSC perspective, the following things are important:

Prelims level: GDP, GVA, Monetary policy

Mains level: Effect of demonetization as well as remonetization on economy

Rebound expected in the Indian economy

  1. The Indian economy is expected to see a rebound in the July-September quarter of this year
  2. GVA growth rate would be 6.3 percent, says a Nomura report

Recovery underway

  1. Nomura’s proprietary indices suggest that growth bottomed out in the second quarter
  2. A recovery is underway in the third quarter, largely because consumption and investment indicators have improved in the third quarter
  3. Rural consumption indicators such as tractor and two-wheeler sales picked up sharply ahead of the festive season, despite weak monsoon, likely reflecting improving cash levels with remonetization
  4. Urban consumption indicators such as passenger vehicle sales and consumer credit also improved in the September quarter, relative to June quarter

Annual growth figures

  1. For this financial year, Nomura expects a GVA growth of 6.4 percent, slightly lower than the RBI’s forecast of 6.7 percent
  2. This is  partly because it expects the government to cut spending due to fiscal constraints

Stance on Monetary policy

  1. It expects rates to stay unchanged in the base case
  2. This is due to incremental growth momentum headed higher, core inflation above 4 percent and fiscal risks on the horizon
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Outstanding credit grows 14.6% in 1 year; non-food loans fall to 13.6%


Mains Paper 3: Indian Economy

The following things are important from UPSC perspective:

Prelims: Not much

Mains level: This news talks about the growth in the outstanding credit and the reasons for it.



  • Outstanding credit loans, bonds and commercial papers (CPs) grew 14.6 per cent year-on-year (y-o-y) between September 30, 2016 and September 30, 2017.
  • But in the same period last year the growth had been lower at 13.8 per cent.

The growth in other areas-

  1. The growth in non-food credit in the fortnight to September 29, 2017, was slightly lower at 13.6 per cent y-o-y.
  2. The net corporate bonds outstanding as at the end of September, was also up by 18 per cent as per latest data released by the Securities and Exchange Board of India (Sebi).
  3. Data from RBI showed that the net outstanding on commercial papers stood has also increased from last year.


Why is there growth in outstanding credit ?

  1. With banks increasingly participating in the bond markets, the share of bonds in total credit is rising.
  2. Higher-rated corporates have in recent days chosen to borrow from the markets rather than from banks as the former route has turned out to be cheaper.
  3. Bankers and sector analysts have in recent days made a case for measuring credit growth in terms of outstandings on loans as well as bonds as better-rated corporates are borrowing increasingly from the money markets.
  4. Between June 2016 and June 2017, around Rs 40,000 crore had moved from the bank’s loan book to the markets.
  5. A large portion of it about 70 per cent of it is in the CPs, or commercial papers. These commercial papers swing between the loan book and the markets, depending on the price, availability, etc.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Economic slowdown a concern, need to push growth, jobs: PM’s advisors


Mains Paper 3: Indian Economy and issues relating to planning, mobilization of resources, growth and development, employment.


From UPSC perspective, the following things are important:

Prelims level: Fiscal Deficit and Fiscal Consolidation

Mains level: Steps to revive economy




  1. The article talks about the newly constituted Economic Advisory Council to the Prime Minister. It also talks about the future roles of this council.


What is the PM-EAC?

  1. The Prime Minister’s Economic Advisory Council was first set up in the year 2004 by the then PM Dr. Manmohan Singh. However, in 2014 it was disbanded by the government.
  2. The re-constitution of the PM-EAC came in the backdrop of growing concerns over the pace of growth in the economy and the slow pace of job creation.
  3. This council consists of Bibek Debroy (Chairperson) and members as Surjit Bhalla, Rathin Roy, Ratan Watal and Ashima Goyal.


What are its tasks?

  1. The council recognised the need to accelerate economic growth and employment over the next six months.
  2. The Council recognised the need for instituting an Economy Track Monitor, using lead indicators and triggers for action, based on informed assessment and analysis.
  3. It will provide specific recommendations for tackling the economic slowdown.
  4. The EAC identified ten themes on which reports will be prepared:
  5. economic growth;
  6. employment and job creation;
  • informal sector and integration;
  1. fiscal framework; monetary policy;
  2. public expenditure;
  3. institutions of economic governance;
  • agriculture & animal husbandry; and
  • patterns of consumption & production and social sector.
  1. The Council will work in consultation with various stakeholders, including sectoral ministries, states, experts, institutions, regulators and the private sector.


The council has consensus on two things:

  1. There is economic slowdown in the country, we need to look into the causes.
  2. The government should not breach the targets of fiscal consolidation and fiscal deficit (3.2 per cent of GDP for current financial year).



  1. Fiscal Deficit: A Fiscal Deficit occurs when government’s total expenditures exceed its total revenues (excluding borrowings).
  2. Fiscal Consolidation: The steps taken by government to reduce its fiscal deficit and debt are known as Fiscal Consolidation. This includes raising taxes, dis-investment in PSUs, rationalisation of subsidies etc
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

IMF lowers forecasts for India

Image Source


Mains Paper 3: Economy | Growth

From the UPSC perspective following things are important:

Prelims Level: Not much

Mains Level: Many organisations forecasts growth rates of countries, around the world. Not all of them are important. As, this forecast came from the IMF, it should be noted.


Forecasts by the IMF

  1. Maurice Obstfeld, IMF Economic Counsellor and Director of Research, said the upward revisions in both cases “were 0.1 percentage point above our previous forecasts”
  2. The IMF has revised upwards, India’s growth performance for 2016 in its latest calculations, which is now 7.1% as opposed to 6.8% in April(owing to strong government spending and “data revisions in India)
  3. According to the IMF report, in India, growth momentum slowed, reflecting the lingering impact of the authorities’ currency exchange initiative as well as uncertainty related to the mid-year introduction of the country-wide GST
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Fiscal deficit hits 96.1% but Modi govt confident of meeting target

Image Source


Mains Paper 3: Economy | Growth

From UPSC perspective, the following things are important:

Prelims level: Basics of Fiscal Deficit

Mains level: It is important to know the pattern of increase and decrease of Fiscal deficit throughout the year. The given article explains the pattern, properly.


Fiscal Deficit Data

  1. India’s fiscal deficit touched 96.1% of the Budget estimate for FY18 at the end of August
  2. Possible reason behind this increase: The fiscal deficit has been higher than in the previous years because of the quick start to spending facilitated by the early presentation of Budget on February 1
  3. According the data released by the Controller General of Accounts (CGA) , April-August fiscal deficit is substantially higher than 76.4% for the year-earlier period

Government’s view on this

  1. According to government, it will meet the fiscal deficit target for the year
  2. The target is3.2% of GDP, or Rs 5.47 lakh crore
  3. In absolute terms, the fiscal deficit for April-August was Rs 5.25 lakh crore

Will government be able to achieve the targets?

  1. The government is considering ways of reviving growth, which slumped to its lowest in three years in the June quarter
  2. The government has already allocated large sums to a few of its key schemes to ensure there was no delay due to funds
  3. The revenue deficit was 133.9% of budget estimate against 91.7% last fiscal
  4. With this big spending(allocations) done, the fiscal situation should start to improve as revenues pick up pace in the second half of the financial year


Fiscal Deficit

  1. A fiscal deficit occurs when a government’s total expenditures exceed the revenue that it generates, excluding money from borrowings
  2. It is an indication of the total borrowings needed by the government
  3. Deficit differs from debt, which is an accumulation of yearly deficits
  4. Generally fiscal deficit takes place either due to revenue deficit or a major hike in capital expenditure
  5. Capital expenditure is incurred to create long-term assets such as factories, buildings and other development
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[op- ed snap] Case for a fiscal push

Note4Students :

Mains Paper 3: Economy | Growth

Prelims: Pro Cyclical fiscal policy and Counter cyclical fiscal policy.

Mains level: The article could be linked to the Growth tag in GS paper 3. Growth process has slowed down in recent month.Government is weighing the pros and cons of using fiscal stimulus as a policy to counter the slowdown in growth process.This article is related to that.


Even as there is talk that the government is planning a fiscal push to support growth, strong dissenting voices are suggesting that all hell will break loose. Comparisons are being made with the 2008 stimulus and dire warnings are being issued

Why Counter Fiscal policy push to the economy cannot be misconstrued as similar to the fiscal policy of 2008?

  1. In 2008 India provided fiscal stimulus of 1.8% of GDP which was far less than provided by its Asian counterparts and several other countries — Korea, US, China, South Africa.
  2. The runaway inflation that followed was not entirely because of fiscal stimulus. Other factors to contributed like debt waiver, pay commissions recommendations, increase in MSP.
  3. There are common elements like Pay Commission recommendations and loan waivers in the current economic scenario and that of 2008.
  4. But, the Pay Commission’s recommendations as a percentage of the incremental PFCE (private final capital expenditure) are down to 9 per cent in FY17 from 22 per cent in FY09. Thus, a less boom in consumption.
  5. Unlike earlier years no arrears have to be paid.
  6. The loan waivers are unlikely to fuel inflation, as inflation has structurally corrected from double digits to low single digits in the last three years, and rural demand is now at multi-year lows.
  7. Procurement price increases in the last three years have been moderate and do not threaten inflation.
  8. Fiscal expansion got a bad name because in India it has been largely pro-cyclical. But, counter-cyclical policy is more effective. This means that deficits should decline when the economy is expanding and increase during economic downturns.


Way Forward

  1. Policy should now focus on structural bottlenecks and not on putting money in the hands of consumers.
  2. Recapitalise public sector banks through widely-discussed recapitalization bonds
  3. The government need not raise immediate tax revenues and the government should avoid crowding out private borrowings .
  4. The fiscal package could also include sector-specific measures, such as on sectors like exports, telecom, construction and power.
  5. Last years textile package of support for wage costs and interest subvention could be expanded. Some successful state-level initiatives, as in the garment sector in Odisha, can be expanded nationally.
  6. Affordable housingoffers multiplier effect. It helps the construction sector and has the maximum employment elasticity.
  7. Resolution of stressed assets must be focused, the National Company Law Tribunal infrastructure needs further ramping up.
  8. Structural and deep reforms like GST, RERA, monetary policy framework and move to less-cash and digital economy, will all pay back over the longer term.  But, create uncertainity in shorter term so it needs deft policy and perception management.
  9. India needs to correct imbalances in regional growth, and the urban-rural divide, and addressing the woes of the farm sector.


There is much work to do, but for this year, we need a definite fiscal push.


Procyclical Fiscal Policy

  • This fiscal policy goes in line with the current mood of the business cycle; amplifying them.
  • Boom: total government spending as a percentage of GDP goes up and tax rates go down, increasing government deficit..
  • Recession: total government spending as a percentage of GDP goes down and tax rates go up, decreasing government deficit.
  • Such a policy is dangerous and undesirable as it brings instability in the economy.
  • The Economic Survey 2017 also acknowledge some procyclicality during boom periods in India.

Countercyclical Fiscal Policy

  • It refers to strategy by the government to counter boom or recession through fiscal measures.
  • It works against the ongoing boom or recession trend; thus, trying to stabilize the economy.
  • Boom– Increasing taxes and reducing public expenditure. This will help to slow down the demand and thus keeping inflation under control.
  • Recession- Reducing taxes and increasing expenditure will help to create demand and producing upswing in the economy.






Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[op-ed snap] Time for course correctionop-ed snap

Image Source


Mains Paper 3: Economy | Growth

From UPSC perspective, the following things are important:

Prelims level: Particulars of the GVA, GDP and CSO.

Mains level: Declining growth rate is a hot topic these days. The Op-Ed presents a comprehensive view of the issue.



  1. The article talks about the recently published Growth Data and Estimates, and the possible reasons behind it

Low Growth rate data released by the Central Statistics Office (CSO)

  1. The CSO has released the estimates of the GDP for the first quarter (April-June) of 2017-18
  2. The numbers showed that in Q1 of 2017-18, GDP grew by 5.7%
  3. Gross value added (GVA) at basic prices grew by 5.6%
  4. Whichever measure one take, the growth rate has fallen below 6%
  5. In the corresponding quarter of the previous year, GDP grew at 7.9% and GVA at 7.6%
  6. The most disappointing aspect of the first quarter numbers is the steep fall in the growth rate of manufacturing to 1.2%

Possible reasons behind this low growth

  1. Certainly, demonetisation must have had a negative impact
  2. Also, the destocking of goods which might have happened prior to the introduction of the GST must have also had a negative impact
  3. But, it might be inappropriate to attribute the entire decline of 2 % points to the two factors

Is low Growth rate reason behind this low growth?

  1. One of the arguments attributed to the low growth rate is the poor performance of the external sector
  2. The high growth phase between 2005-06 and 2007-08 saw exports growing at an average annual rate exceeding 20%
  3. Both in 2014-15 and 2015-16, the export growth rate was negative
  4. India’s declining growth rate has also coincided with poor export performance
  5. However, the export growth rate has become positive since the second half of 2016-17
  6. Due to this reason, the sharp decline in growth rate noted in the last few quarters cannot be attributed to poor export performance

Fundamental Problem behind the Low Growth rate

  1. The fundamental problem has been the sharp fall in the investment rate
  2. Gross fixed capital formation rate stood at 34.3% in 2011-12
  3. This started falling steadily and touched 29.3% in 2015-16
  4. It fell further to 27.1% in 2016-17
  5. According to the latest numbers, in the first quarter of 2017-18, it stood at 27.5%
  6. It is the decline in private investment, both corporate and households, that has been responsible for the steady fall
  7. The fall in corporate investment is steep compared to what was achieved in 2007-08
  8. And Household investment has continued to decline even in recent years
  9. Household here includes not only pure households but also unincorporated enterprises

One important actor behind the Low Investment Rate

  1. One reason is the falling investment rate is that the last few years have shown a steady and substantial increase in FDI
  2. FDI inflows in 2016-17 were at an all-time peak of $60 billion

What can be done to stimulate private investment?

  1. Most important thing is to create an appropriate investment climate
  2. Some of the noteworthy changes that have happened in the last few years are the passing of the bankruptcy code and GST legislation, and modifications in FDI rules
  3. We must continue with the reform agenda and there is still a lot to be done in the area of governance

NPA issue behind low investment

  1. Financing investment has taken a wrong turn because of the poor health of banks
  2.  The sharp reduction in the flow of new credit has also put prospective investors in a difficult situation
  3. To bring banks back to good health, recapitalisation has become urgent

The way forward

  1. To sum up, the growth rate in 2017-18 is unlikely to exceed 6.5%
  2. Once the glitches and fears of the GST are over, the growth rate may pick up
  3. Our goal must be to achieve and sustain a growth rate of 8% and above over an extended period
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[op-ed snap] Narendra Modi govt’s growth challengeop-ed snap

Image Source


Mains Paper 3: Economy | Growth

From UPSC perspective, the following things are important:

Prelims level: Particulars of the GDP and GVA

Mains level: It is important know the reason behind the current slowdown in the Economy.



  1. The article talks about the reasons behind the slowing down of the Indian Economy

Slow Pace of Economic Health Indicators

  1. The pace of economic growth has slowed considerably, with no clear sign of a sharp pullback in the near term
  2. GDP increased at a modest pace of 5.7% in the first quarter of the current fiscal
  3. GVA growth, the preferred indicator of economic activity, came in at 5.6%, compared with 7.6% in the same quarter last year
  4. It now seems difficult for the economy to get close to the RBI’s GVA growth forecast of 7.3% for the current year

Reason behind this Slowdown

  1. Impact of demonetisation
  2. And destocking of inventory before the implementation of the goods and services tax (GST)
  3. However, it is also likely that the softening of economic activity, which started before demonetisation, is still continuing
  4. Therefore, it will not be possible, to gauge precisely which factor is affecting growth to what extent

The Main reason of worry

  1. The main worry for policymakers is that the economy is slowing at a time when global markets are reasonably stable
  2. And commodity prices are within India’s comfort zone

Is it right to give a fiscal stimulus to revive growth?

  1. It is likely that a sufficiently large fiscal push will help growth in the short run, but there are at least three big problems with this idea
    (1) There is no guarantee that it will take the economy to a higher growth trajectory in a sustainable manner
    (2) The government doesn’t have the fiscal space(means resources) to give a meaningful stimulus at this stage
    (3) Breaching the fiscal deficit target(by giving fiscal help to economy) yet another time will affect policy credibility and could pose a threat to hard-won macroeconomic stability
  2. Therefore, Fiscal stimulus is best avoided

The need for recapitalization of public sector banks

  1. It is highly unlikely that a predominantly bank-financed economy will grow as desired when about three-quarters of the banking system is in deep stress
  2. While the bankruptcy process will help deal with non-performing assets, the government needs to move fast on bank recapitalization

The Way Forward

  1. The government has taken several steps in the right direction, such as the implementation of GST, which will help the economy in the medium to long run
  2. But there has been virtually no movement on reforms in areas like land and the labour market
  3. The government should go all out and use its political capital to push reforms in these sectors, which will improve the ease of doing business
  4. All this may not lift growth in the next quarter, but will help strengthen the foundation for a sustainable economic recovery


Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

April trade deficit widens to $13.2 bn, highest since Nov. ’14



The changing trends in India’s import and export sector need to be analysed. From UPSC’s perspective, the following things are important:

Prelims Level: What is trade deficit, BoP and other related terms.

Mains level: Well Even though 1 month data is not much relevant for mains but you need to track this news as if this trend continuous in long run this could effect India’s external sector stability which then becomes an important topic for mains.


  • The country’s goods trade deficit in April, the first month of FY’18, widened to $13.2 billion — the highest since the $16.2 billion clocked in November 2014, data released on Monday by the Commerce Ministry showed

Why this happened?

  • This was due to goods imports in April recording a historic 49.07% year-on-year growth to $37.9 billion — following a surge in gold, oil, coal, chemicals, pearls and precious stones, machinery, transport equipment and electronics imports
  • and outpacing exports despite shipments rising for the eighth consecutive month

Stats: (The figures need not be remembered, but note the share of various commodities in import and exports)

  •  In India, gold imports continued to surge when it jumped 211.35% in April to $3.8 billion Oil imports in April rose 30.12% to $7.3 billionIn this connection, it is mentioned that the global Brent prices ($/ bbl) have increased by 25.4% in April 2017 vis-à-vis April 2016 as per World Bank commodity price data(The pink sheet)
  • On the exports side, petroleum products shipments rose 49% to $2.94 billion while readymade garments exports increased 31.7% to $1.7 billion
  • Exports of engineering goods went up 28.2% to $6.1 billion, while chemicals increased 24% to $1.29 billion and gems and jewellery exports rose 15% to $3.97 billion


  • Increase in imports of oil and pearls and precious/semiprecious stones augur well for exports of petroleum products and gems and jewellery respectively as such imports are inputs for the exports.


Trade deficit(Explained)

  • A trade deficit is when a country imports more than it exports.
  • It is also called a negative balance of trade. It is one way of measuring international trade.
  • To calculate the trade deficit, subtract the total value of exports from the total value of imports. What Causes a Trade Deficit? A trade deficit occurs when a country does not produce all it needs. Most nations must borrow from foreign states to pay for the imports. Therefore, a country with a trade deficit will also have a current account deficit.
  • A trade deficit also results when domestic companies manufacture in foreign countries. When raw materials are shipped overseas to factories, they count as exports. When the finished goods are shipped back home, they count as imports. That’s true even though they’re made by domestic companies.
  • The imports are subtracted from the country’s gross domestic product. That’s despite the fact the earnings benefit the company’s stock price and the taxes increase the country’s revenue stream. Effects of a Trade Deficit (Hint: It’s not always bad) Initially, a trade deficit is not a bad thing. It raises a country’s standard of living. Its residents have access to a wider variety of goods and services for a more competitive price.
  • It reduces the threat of inflation, since it creates lower prices. A trade deficit indicates that the country’s residents are feeling confident and wealthy enough to buy more than the country produces.
  • Over time, a trade deficit creates jobs outsourcing. As a country imports certain goods rather than buying domestically, the local companies start to go out of business.
  • The domestic industry will lose the expertise needed to remain competitive. As a result, the home country creates fewer jobs in that industry. Instead, the foreign companies hire new workers to keep up with the demand for their exports.


Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

India to launch new IIP series with 2011-12 base year on May 9

  • India will unveil a new series of Index of Industrial Production with a base year 2011—12 on May 9 with an aim to map economic activities more accurately.
  • A high-level panel had firmed up the methodology for the IIP with new base year of 2011—12. Currently, the IIP is calculated on base year of 2004—05.
  • The change in baseline for the IIP is expected to bring in more accuracy in mapping the level of economic activity and calculating other numbers like national accounts.3
  • Work is also in progress to change the base year for the wholesale price index (WPI) to 2011—12 year.
  • The Central Statistics Office (CSO) has already changed the base year for the country’s national accounts,
    including the gross domestic product (GDP) and the gross value addition (GVA).
  • The retail inflation based on the consumer price index (CPI) is also calculated on the base year of 2011—12.
  • For long, economists and think tanks have been pitching for release of new time series of the IIP and the WPI so that GDP numbers can be based on more accurate and realistic data.
  • The base year is revised periodically to capture the changes in the structure and composition of the industry
    over time due to technological changes, economic reforms and consumption pattern of the people.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

India’s external debt rises to $486 billion

  1. India’s external debt at the end of March 2016 stood at $485.6 billion
  2. It is an increase of 2.2% from over its level at end-March 2015
  3. Factors: It is largely driven by the increase in long-term external debt, particularly NRI deposits
  4. Of total external debt, the Govt’s share stood at 18.9% or $93.4 billion at end-March 2016 compared to 18.8% ($89.7 billion) at March 2015
  5. Manageable: India’s external debt has remained within manageable limits in 2015-16
  6. Indicators: Increase in foreign exchange reserves to debt ratio to 74.2%, the external debt-GDP ratio of 23.7% and fall in short term debt to 17.2%
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

WPI rises to 20-month high

  1. News: Wholesale Price Index (WPI) inflation accelerated in June from the previous month, touching a 20-month high as prices of fruits, vegetables and cereals continued to rise
  2. WPI inflation for June accelerated to 1.6% from 0.8% in May
  3. The rise in the WPI was driven largely by inflation in the food articles segment
  4. Office of the Economic Adviser, Department of Industrial Policy and Promotion (DIPP), under the Ministry of Commerce, calculates the WPI index
  5. Base year: 2004-05
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Retail inflation quickens; IIP up

  1. News: A sharp jump in the prices of vegetables drove up food costs and fanned consumer price inflation to its fastest pace in 22 month
  2. Consumer Price Inflation (CPI) was 5.77% year-on-year in June 2016
  3. The Index of Industrial Production (IIP) recorded a 1.2% year-on-year growth in May 2016, due to high growth in consumer durables (washing machines, televisions, refrigerators) output
  4. The Central Statistics Office (CSO), under the Ministry of Statistics and Programme Implementation (MOSPI) releases both CPI and IIP data
  5. CPI: Base year – 2012; Released on a monthly basis for urban, rural, and combined
  6. IIP: Base year – 2004-05; Released on a monthly basis with a time lag of 6 weeks
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Manufacturing activity picks up in June

  1. Manufacturing activity saw a pick up in June after two months of sluggish growth, according to a private survey
  2. The Nikkei India Manufacturing Purchasing Managers’ Index (PMI) rose to 51.7 in June from 50.7 in May
  3. Indian manufacturers raised production at a faster rate during June, supported by a stronger increase in new business inflows
  4. The PMI data suggest that external demand remains lacklustre even as domestic demand continues to support growth, led by consumption
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Core inflation higher than desired: Rajan

  1. Context: RBI Governor Raghuram Rajan on inflation condition in India
  2. Inflation: India’s core inflation remains a bit higher than policymakers would like
  3. Consumer prices rose last month at a more-than-expected 5.39% annual rate, up from 4.83% in March
  4. It was the first increase in the retail inflation rate since January
  5. Economic growth: However, the economy’s recovery should accelerate with a good monsoon
  6. Growth also seems to be ticking higher & India’s economy is among the world’s fastest growing, at 7 percent-plus
  7. However, the 8 percent level needed to alleviate poverty remains elusive
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Resistance to reforms vanishing: Jaitley

  1. Context: Jaitley was speaking at US think tank on India’s growth prospects
  2. Opinion: India is undergoing the most critical and significant reforms after 1991, in terms of unleashing its productive forces
  3. The 7.5% growth looks impressive but considering India’s requirements it is “not good” enough
  4. Approach: The govt had adopted 3-pronged approach – being decisive, consistent and transparent
  5. Measures: Tackled corruption, eased procedures and empowered the states to take decisions
  6. The govt kept significant part of the revenue gained and diverted it to social sector and infrastructure
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

ADB lowers India’s growth forecast to 7.4 % for 2016-17

  1. News: Asian Development Bank has lowered India’s growth forecast to 7.4 per cent from an earlier estimate of 7.6 per cent for the financial year
    ending March 31, 2017
  2. Context: Because failure of the govt to push through the GST reform bill and the Land and Labour Reforms
  3. Relevance: Potential growth can be raised if it can successfully implement reforms including unifying tax regime, improving labour market regulations, and opening further to FDI and trade
  4. Report: Asian Development Outlook 2016
  5. Challenges ahead: India’s Challenges to finance the infrastructure, needs delivery of sustainable growth, with funding requirements estimated at around $200 billion a yr through 2017-18
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Rising working population favours growth

  1. Context: DBS Group Research report ‘Global growth: what is potential and where is it going?’
  2. Global growth: Today, it is running at or a little above potential, & potential is headed down thus growth will be slower
  3. Why? Productivity and population growth have slowed a lot & will continue to fall rapidly in the years ahead
  4. India: Productivity and population growth in working age group puts India in a better place than Asian
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Competitive federalism in the state bond market

  1. Context: Data from this week’s auction of state government bonds (a.k.a. state development loans)
  2. Finding: Markets are starting to differentiate between states based on their individual credit quality
  3. Usually: It is a routine affair which gets far less attention than central government bond auctions
  4. Change: but this time it caught the eye of market watchers
  5. Why? The yields being demanded by the markets for state bonds jumped considerably
  6. There was a wide difference between the yields demanded on bonds of different states
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Consensus in pre-budget all party meet

  1. Context: An all party meet was held to discuss issues for Budget session so that the session goes productive
  2. The consensus: on the need to allow Parliament to function smoothly
  3. The change: It signals a rethink by political parties, who let their differences and the resulting disruptions to cause a washout of the previous 2 sessions
  4. Opposition stand: will not allow the passage of any contentious bills in the first half of the session, except those on which there is a consensus
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Budget to bet on spurring growth

  1. Context: Union Budget for 2016-17 will primarily focus on stimulating growth without deviating too much from the fiscal deficit target set by Finance Minister in previous Budget
  2. Fiscal deficit target: 3.9 per cent of GDP for 2015-16, paring it further to 3.5 per cent for 2016-17 and 3 per cent for 2017-18
  3. Economic scene: Economic recovery is tentative and private sector investments remain elusive
  4. What’s clamour? Government to relax its deficit targets, to pump prime the economy via enhanced public investments
  5. Use of Twitter: For budget, the govt. invited suggestions from citizens through Twitter for the first time
  6. Some of the new suggestions are administrative in nature and can be examined at any point in the year
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Industrial growth in FY14 was higher in poorer states

  1. Industrial growth in the traditionally weaker states of Bihar, Odisha and Chhattisgarh in 2013-14 dwarfed that of their more developed counterparts
  2. Data released as part of the Annual Survey of Industries showed Bihar, Odisha and Chattisgarh had grown the most industrially in FY14
  3. This is in a year when the economy had to cope with the euro crisis and its effects on Indian industry
  4. Bihar at 97.5 per cent had the highest growth but measured from the country’s steepest decline the previous year
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Core sector output recovers, grows 0.9 per cent in Dec.

Fertiliser, coal, cement output and electricity production contribute.

  1. The output of 8 core industries — that comprise almost 38 per cent of the weight of items included in the Index of Industrial Production (IIP) — could record only a 0.9 per cent growth in Dec.
  2. Due to 4.1 per cent contraction in output of crude oil, 6.1 per cent contraction in natural gas and 4.4 per cent shrinkage in steel.
  3. Data on the core infrastructure industries has clearly been disappointing as growth remained sub one per cent in December after a negative blip in November.
  4. During April-December 2015 period this fiscal, the output of these eight sectors slowed to a 1.9 per cent growth from 5.7 per cent growth in the same period last fiscal.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Govt lowers GDP growth rate to 7.2%

  1. Govt has marginally revised the economic growth for 2014-15 to 7.2% from earlier estimate of 7.3%.
  2. It has taken into account the latest data on agriculture and industrial production.
  3. GDP growth rate for 2013-14 has also revised downwards to 6.6% from earlier estimate of 6.9%.
  4. There is a downward revision in terms of Gross Value Added for 2014-15 on account of subdued performance of secondary sector.
  5. GVA as a concept was introduced by the CSO last year to measure value addition in the economy.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Govt. to back state-run banks’ capital needs: Sinha

The government reiterated its commitment to support public sector banks’ capital needs at a time when bad loans are eroding their capital and putting pressure on profits.

  1. Government is going to support public sector banks and fully support all the Basel-III requirements.
  2. The banks are going to be fully supported as far as their capital adequacy in concerned.
  3. The RBI is forcing banks to clean up their balance sheet by asking the lenders to make adequate provisions for bad loans, which were unidentified hitherto.
  4. The banking regulator has prepared a list of borrower accounts, which has to be classified as non-performing.
  5. The government said it would provide Rs.25,000 crore in this fiscal year and an additional Rs.25,000 crore next fiscal year.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

PMO seeks industry inputs to spur growth

The performance of 8 core sectors in November is worrying, with their output shrinking.

  1. The PMO has sought industry recommendations on reviving and sustaining the growth momentum in the core sectors of manufacturing and infrastructure.
  2. Industry had urged finance minister Jaitley to spur domestic demand in the Budget in order to revive private sector investments.
  3. To sustain the reforms process in specific sectors and assess policy issues beyond the short-term imperatives which can be addressed in the Budget.
  4. Though industrial output has grown at 3.9 per cent from April to November 2015, it remains volatile.
  5. After surging 9.8 per cent in October last year, the index of industrial production fell by 3.2 per cent in November — its worst performance since October 2011.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Act localop-ed snap

The best way to deal with global market panic is to get domestic policies right.

  1. The BSE Sensex has plunged below the level when Modi secured a stunning victory in elections .
  2. Rupee has fallen below Rs 68 to the dollar for the first time since August 2013 (time of taper tantrum)
  3. This volatility owes more to global factors, especially a deepening Chinese slowdown, collapse in commodity prices and US Fed normalisation of its monetary policy.
  4. US Federal Reserve embarking on a “normalisation” of its monetary policy.
  5. In real effective term, rupee has actually strengthens against a basket of 6 currencies after adjusting for inflation differential.
  6. Weakening against the dollar is, thus, a sign of the latter’s strengthening in an uncertain global environment where the greenback has become every investor’s safe-haven asset.
  7. Our focus should be on improving the domestic investment environment and preserving macroeconomic stability.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Dealing with the slowdownop-ed snap

IMF forecast provides India a comparative edge in wooing the global investor community.

  1. IMF has cut the global growth forecast to 3.4 % In 2016, 0.2 % below its forecast of October.
  2. Growth forecast for China unchanged at 6.3 per cent and for India at 7.5 per cent.
  3. Slowdown in China with it posting the slowest growth yet in 25 years and weak commodity prices are indicative of pronounced global weakness.
  4. The year saw turbulence in the Chinese economy, with heavy capital outflows and stock market volatility which might exacerbate in the coming year.
  5. Containing the spillover effects of volatility (exchange rate plus point no. 4) in Beijing would be a big challenge for planners in India.
  6. But it is essential for the government to coherently address the growing anxiety among domestic consumers and stem, if not fully reverse, the demand slump.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Rise and fall

2 data sets point to tenuous nature of India’s economic recovery.

  1. First, industrial production(IIP) contracted in November to the lowest level in over 4 years with manufacturing sector esp capital goods output — a barometer of investment — to share much of the blame .
  2. CPI rose to 5.6 per cent for December, though it remains within the RBI’s January target level of 6 per cent. The main reason here was the higher food price inflation.
  3. Data paints a contradictory picture. Anaemic industrial performance with rising inflation rather than falling inflation, which is not the case.
  4. CPI continues to be relatively high and “sticky”, despite the sharp fall in commodity prices globally, especially crude.
  5. Challenges – if the government tries to jump-start the economy through higher expenditure, it will worsen its fiscal deficit, resulting in increased inflation and put pressure on the RBI to raise interest rates.
  6. If the RBI, on the other hand, tries to reduce interest rates in order to incentivise economic activity, it may further weaken its grip over the CPI inflation targets it has set itself.
  7. Quality of its expenditure is key.
  8. Government must ring-fence capital expenditure and restart private capex cycle .
  9. Reaching out to rural India, where demand has collapsed.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Tax on seed funding to be scrapped

According to estimates by the team of officials working on the Start Up India programme, start-ups in the country received around 9 billion dollars of funding in 2015.

  1. The government has decided to scrap a tax on seed funding provided to start-ups by Indian angel investors in the upcoming Union Budget.
  2. To help domestic financiers bankroll new entrepreneurial ventures under its Start Up India campaign.
  3. The tax provision in question treats infusion of funds by domestic angel investors as income in the hands of the start-up, making India.
  4. The only country in the world to penalise local angel investors in such a manner.
  5. This tax applies only to domestic investors and thus acts as a disincentive to local funding for start-ups that the government wants to incentivise instead.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Indian companies plan record overseas fund-raising drive

  1. Indian companies plan to raise close to $12.33 billion in the next 3 months.
  2. This is mainly to refinance their old loans and fund expansion.
  3. It is happening at a time when very few companies are planning large capacity expansion because of stalled infrastructure projects and low capacity utilisation.
  4. Though the government has stepped up public spending, private investment is essential to a robust investment recovery.
  5. The union budget in February, the GST, and the awaited repeal of retrospective taxation could stimulate private investment.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Corporate optimism on the wane as new investments decline sharply

Industry’s optimism about the investment climate has waned due to a sharp recent decline in the value of new project announcements, data from the Centre for Monitoring Indian Economy (CMIE) shows.

  1. New projects worth Rs. 1 lakh crore were announced in the December 2015 quarter, down from Rs. 4 lakh crore in December 2014.
  2. New project announcements were at Rs.8.2 lakh crore in calendar year 2015 as compared to Rs.9.4 lakh crore in 2014.
  3. At the same time, the data shows that the value of stalled projects fell to Rs.1,723.2 crore in the December 2015 quarter, down from Rs.86,177.3 crore in 2014.
  4. The stock of stressed assets come in 5 different buckets — specific permissions, sectoral issues, market-related postponements, promoter funding issues.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Dragon’s fire may singe Indian industry

Commerce Ministry, Chief Economic Advisor, NITI Aayog Vice-Chairman to meet soon to assess impact.

  1. The decline in the value of China’s currency against the dollar is a worrying development as it may lead to a sharp increase in cheap imports hurting several Indian industries.
  2. The depreciation of the yuan may expand the country’s trade deficit.
  3. India’s trade deficit with China had ballooned from $1.1 billion in 2003-04 to $48.5 billion in 2014-15 or over 4 times India’s exports to China ($11.9 billion) in FY’15.
  4. The government is considering proposals to protect domestic steel manufacturers from cheap steel imports mainly from China.
  5. To offset the impact of trade deficit, India had sought more investments from China especially in mega industrial parks (in States such as Gujarat and Maharashtra).
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Govt. lowers growth outlook, stresses supply-side reforms

Without reforms, GDP growth next year is unlikely to be significantly greater

  1. India lowered its GDP growth projection for the current year to between 7-7.5 per cent against the earlier forecast of 8.1-8.5 per cent.
  2. The cut in forecast follows GDP growth in the first half of the year slowing to 7.2 per cent from 7.5 per cent in the last year.
  3. Economic growth was dragged down by the 17.4 per cent decline in exports and adverse impact of deficient monsoons on farm sector output.
  4. The slowdown will pose a challenge to meeting the fiscal deficit target of 3.9 per cent of GDP and will also place a stress on tax revenue collections.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Maharashtra is biggest state economy, says Brickwork Ratings

Nationwide analysis finds state accounts for over 27 per cent of gross state domestic product and registered 11.69 per cent growth.

  1. Maharashtra is the biggest economy at Rs 16.87 lakh crore in terms of gross state domestic product (GSDP), followed by Tamil Nadu and Uttar Pradesh.
  2. Maharashtra earns approximately 70 per cent of its total receipts through tax revenues, the highest among the bigger states, followed by Gujarat and Tamil Nadu.
  3. Maharashtra’s infant mortality rate (IMR) of 25 is below the national average for all states, which stands at 50.
  4. The three fastest-growing states were Bihar at 17.06 per cent, MP (16.86 per cent) and Goa (16.43 per cent).
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

India showing early signs of recovery: Moody’s

Some of the basic parameters of recovery were looking better, as growth in the production of capital goods has picked up, according to data.

  1. An increase in public sector expenditure and an upturn in capital replacement cycle are driving investment in India.
  2. It will take a while for private investment to show a sustainable revival.
  3. India’s economy was forecast to grow forecast at 7 per cent for 2015 and 7.5 per cent for 2016, which take into account a slower investment recovery.
  4. Report forecasting the GDP growth of 2.8 per cent in the G20 economies in 2016, with recovery expectations in U.S. offset by slower growth in China and emerging markets.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Manufacturing sector growth drops to 25-month low

  1. India’s manufacturing sector grew at its slowest pace in 25 months in November on sluggish pace of new business orders.
  2. This also marks the 4th consecutive month of decline in the rate of Indian manufacturing output growth.
  3. Among sub-sectors, consumer goods was the best performing category.
  4. The slowdown in growth combined with weak inflationary pressures support further repo rate cuts.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

The problem of debt concentrationop-ed snap

India is now coming to terms with the costs of crony capitalism

Let’s find some roots in the past, for dangerous growth in corporate debt ?

  • First, the bursting of the Indian credit bubble, when bank loans grew around 10 percentage points faster than nominal GDP, has left behind inevitable cracks in the financial system.
  • Second, the concerted push for higher private investment in infrastructure encouraged companies to take on excess debt.
  • While, inexplicable policy of allowing companies in the non-tradable sector to take on foreign debt is beyond rational economic explanation.
  • Third, the regulatory mess during last few years, projects got stalled after money was put on the ground and projects got into trouble because of policy confusions that were beyond control.
  • Fourth, most heavily indebted companies shows that there is a strong link between the current financial fragility and crony capitalism excesses of the past decade.

What now, Is their any way to move out? Two reasons, why more urgent action is needed.

  • First, financial fragility in the Indian private sector is one clear worry among global investors.
  • Second, the Indian economic recovery cannot be sustained unless private-sector investment picks up, and that is difficult unless corporate financials improve.
  • India is now coming to terms with the costs of crony capitalism. The bill should not be presented to taxpayers.

What is the way out for leveraged companies in India, Can you find some solutions?

Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Gap widening between rural and urban India

Despite two successive years of drought, overall food inflation in India has remained tepid.

  1. Inflation has been slowing both in rural and urban areas, a widening difference between the two as rural inflation is decelerating at a much slower pace.
  2. The resultant gap between rural and urban inflation has more than doubled over the last one year, by HSBC Global Research show.
  3. The ‘excess inflation’ in rural India, is arising from food, fuel, transportation as well as from core inflation.
  4. The difference between rural and urban inflation is most stark for fuel and transportation, followed by core and to a lesser extent food.
  5. Rural India’s fuel mix is more geared toward domestically produced firewood, chips and biogas inputs, which are not a part of the global deflation cycle.

Higher investment in rural infrastructure and meaningful agricultural reforms are needed to make growth weather proof and put it on a higher, more sustainable path.

Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Signals point to better economic activity: CEA

The signals are pointing to an improvement in economic activity. But on the pace, we do get mixed signals,Chief Economic Adviser Arvind Subramanian said.

  1. Indirect tax revenue numbers are doing very well, direct tax revenue numbers are not doing so well.
  2. Stalled projects have also come down, but at the same time exports are in negative territory.
  3. The economy is still well below potential and that’s the sense, even though it’s recovering and full of potential, therefore it needs monetary policy support.
  4. China was experiencing a temporary wobble and it would regain its footing, but at 5-7 per cent growth levels.
  5. If China grows rapidly, it is good for the world and for India. If China slows down, it will throw up challenges.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

ADB sees slower growth for Asia

Growth in developing Asia will likely be slower than previously thought as a slowdown in China’s economy hurts demand.

  1. Developing Asia is now expected to grow 5.8 percent and 6.0 percent this year and in 2016, down from the ADB’s July forecast of 6.1 percent and 6.2 percent.
  2. The region, which groups 45 countries in Asia-Pacific, grew 6.2 percent in 2014.
  3. Fears of a China-led global slowdown, which had sent global stock markets tumbling, prompted the U.S. Federal Reserve last week to hold off on raising interest rates for the first time in almost a decade.
  4. Capital outflows could accelerate ahead of the Fed rate hike and urged policymakers to strengthen financial systems in the region to mitigate shocks.
  5. India’s growth is seen weaker at 7.4 percent and 7.8 percent for this year.
Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

India relatively insulated against deflation. Why?

“India remains a very bright spot in the global economy because we have growth and we have robust underlying demand trends.”

  1. India is relatively insulated from deflationary tendencies due to strong demand trends, but there is still a need to be watchful.Powerful deflationary forces that are at work in the global economy.
  2. “The one real challenge that looms ahead for India’s economy appears not to be price inflation but possibly price deflation,” Dr. Subramanian said.
  3. “Some of the public investment that we are ramping up now, strong demand trends and hopefully a reasonable monsoon will enable us to achieve the 8 per cent GDP growth,”.
  4. With the government working hard to increase the ease of doing business, and the strong demand in the economy, Foreign Institutional Investors are likely to start returning to the country.
  5. Skills India is one programme where hands-on skills to workers will be provided so they can join industry, including the auto components industry.
  6. In addition, the government is planning an investment of Rs 8.5 lakh crore in the Indian Railways, investments in roads have doubled and the National Infrastructure Investment Fund will further help in providing investment in the infrastructure sector.

What else do you think works for our economy?

Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

Global growth likely to be weaker than expected: IMF chief

Ms. Lagarde said Asia is still expected to lead global growth, but the pace is slowing with a risk of possibly sagging further due to recent financial market volatility.

  • The head of the International Monetary Fund says global economic growth is likely to be weaker than earlier expected and will remain at moderate levels.
  • Asia is still expected to lead global growth, but the pace is slowing with a risk of possibly sagging further because of recent financial market volatility.

Global economic situation will have a significant impact on developing countries, including Indonesia.

Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

[Discuss] GDP growth estimates: Grappling with new complexities

Let us first understand the new methodology on GDP numbers, changed to reflect the new base year of 2011-12 against the earlier one of 2004-05.

  1. The revised methodology, changed the way GDP numbers have been calculated. The new method was used to calculate the figures for 2014-15.
  2. The new numbers changed GDP growth to 5.1 per cent from the earlier 4.5 per cent for 2012-13 and For 2014-15, the growth came at 7.3 per cent.
  3. Now, GDP is taken at market prices. This includes indirect taxes and excludes subsidies, quite different from what had been calculated so far. Which was GDP at factor cost, which included subsidies and excluded indirect taxes.
  4. The Central Statistics Office uses price deflators to convert nominal GDP into real GDP, which is a mix of WPI, CPI and other price indices.


Let’s dig out more on –

  1. Why this new methodology comes into picture this year?
  2. What is difference between Nominal GDP and Real GDP?

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