New Delhi: Batting for massive wealth creation in the coming financial year, the Economic Survey 2020 on Friday projected that the country’s economy would grow at 6-6.5 per cent in the fiscal year starting April 1, 2020, while the economic growth for FY20 would remain at five per cent. In the Survey, tabled by finance minister Nirmala Sitharaman a day before the Union Budget for 2020-21, the government also called for measures to expeditiously deliver in order to create a $5-trillion economy by 2024. Ms Sitharaman will present the Union Budget in the Lok Sabha at 11 am on Saturday.
However, it also warned against a widening fiscal deficit, stating that the government might need to relax its target of 3.3 per cent of GDP for the current financial year to boost growth from over a decade low. Besides, the government also emphasised on cutting food subsidies, and at the same time looking at businessmen with respect as they create wealth and jobs in the country. Commenting on the Survey, Prime Minister Narendra Modi tweeted to say it has focused on wealth creation for all Indians. “It outlines a multi-faceted strategy to achieve a $5 trillion economy through enterprise, exports, ease of doing business and more. On the other hand, economists believe that the Survey’s growth forecast is too optimistic as the recovery is likely to be slow and shallow amid rising inflation and declining investment.
The Survey, written by Krishnamurthy Subramanian, chief economic adviser to the finance ministry, also introduced 10 new ideas to boost growth, including wealth creation that benefits all, markets enable wealth creation, trust is a public good that increases with use, grassroots entrepreneuers that create wealth in their districts, pro-business policies give equal opportunity, remove anachronistic government interventions, job creation, etc.
Besides, the Survey called for boosting manufacturing with the “assemble in India for the world” concept, and underlined the need to spend $1.4 trillion in infrastructure to nearly double the size of the economy to $5 trillion. Listing global trade tensions and oil prices rising from an escalation in the US-Iran standoff as downside risks to growth, the Survey also pointed out that India’s GDP growth should strongly rebound in 2020-21 on a low statistical base of five per cent growth in 2019-20.
Amid soaring expenditure due to big ticket announcements and shrinking revenue in 2019, the government targeted containing the fiscal deficit at Rs 7.04 lakh crores, or 3.3 per cent of gross domestic product, in the financial year ending March 2020, up from Rs 6.49 lakh crores, or 3.4 per cent of GDP, in the previous year.
Despite the global slowdown, Mr Subramanian is confident that economic slowdown has bottomed out and India’s GDP will grow at 6-6.5 per cent in the next fiscal year. However, he rejected his predecessor Arvind Subramanian’s analysis of India’s GDP growth rate being overestimated by 2.7 per cent post-2011, saying that the allegation was “unfounded” and “unsubstantiated by the data”.
“If you look at the business cycle phenomena in India, typically if you look at the peaks and troughs and co-relate it with what has happened, it seems like we have hit the trough therefore there should be uptick in growth. That is what we are budgeting,” he said at a media briefing here on Friday.
Amidst a weak environment for global manufacturing, trade and demand, the Indian economy slowed down with GDP growth moderating to 4.8 per cent in the first half of 2019-20, lower than 6.2 per cent in H2 of 2018-19. Asked if there is any change in meeting the $5 trillion target by 2024, Mr Subramanian said: “To the best of my knowledge, there is no change in the deadline.”
Mr Subramanian also said by focusing on the labour-intensive sector, India can create four crore jobs by 2025 and eight crore jobs by 2030. “The banking sector needs to scale up and become proportional to the size of the economy. The exponential rise in India’s GDP and GDP per capita post-liberalisation coincides with wealth generation in the stock market,” he said.
Interestingly, the Survey also traced the country’s history, right from ancient texts such as Arthashastra and Thirukural to contemporary times, and the problem of bad loans. It also drew links between the invisible hand of the market, the hand of the trust and how it can contribute to India’s target of becoming a $5 trillion economy.
The Survey also introduced the concept of trust as a public good that gets enhanced with greater use, and suggested policies must empower transparency and effective enforcement using data and technology to enhance this public good. “Pro-business practices can help promote the invisible hand of the market. In a market economy too, there is need for the State to ensure a moral hand to support the invisible hand,” the Survey emphasised.
Facing the worst economic slowdown since the global financial crisis of 2008-09, the Survey called for boosting manufacturing with an “assemble in India for the world” concept in order to boost job creation. For the current fiscal, it projected GDP growth of five per cent, the lowest in 11 years, and worsening job prospects.
“The deceleration in GDP growth can be understood within the framework of a slowing cycle of growth with the financial sector acting as a drag on the real sector. The government must use its strong mandate to deliver expeditiously on reforms, which will enable the economy to strongly rebound in 2020-21,” it said.
As per the Survey, economic growth, which primarily is driven by consumer spending, has to now come from greater investment. The Survey also emphasised on investment-led growth by focusing on reviving the MSME sector. “To further make it easier to do business, removing the red tape at ports to promote exports as well as measures to make it easier to start a business, register property, pay taxes and enforcing contracts,” it said.
The Survey called for improving governance in public sector banks and the need for more disclosure of information to build trust. It also talks about dwarfism in the banking sector. Printed in lavender colour — the same as the colour of the new Rs 100 currency note — the theme of this year’s Economic Survey is wealth creation.
In a bid to boost demand as well as consumption in the country, the central bank has already cut interest rates by 110 basis points in 2019, as the government speeded up the insolvency resolution process under the Insolvency and Bankruptcy Code and easing of credit, particularly for stressed real estate and Non-Banking Financial Company (NBFCs) sectors.
“Impact of critical measures to boost investment, particularly under the National Infrastructure Pipeline, present green shoots for growth in the second half of 2019-20 and 2020-21,” the Survey said.
However, Mr Subramanian added: “When there are large firms whose financial statements are not dependable, it creates ripple effects, affecting the credibility of statements of other firms too. If wealth had not been eroded by wilful defaulters, we could have spent almost double on the social sectors.”
“Evidence shows the invisible hand of the market, and openness, enables growth at both aggregate and sectoral levels. These are the two pillars for wealth creation in the economy,” Mr Subramanian said, adding that an analysis of wealth creators by entrepreneurs shows that it benefits everyone.
