With a sky blue cover, Dr. K. Subramanian, the current Chief Economic Adviser, aims to explore the perfect ‘economic model for India’ by the means of his survey. The Economic Survey, an annual exercise, was transformed into a melting pot of ideas and economic innovations, supplied with robust macroeconomic data by his predecessor – Dr. A. Subramanian. Bereft of any creatively spectacled vision for the economy, The Economic Survey(s) had for long been an exercise of technocratic analysis of sectors in the economy. With Mr. Arvind Subramanian, the survey moved beyond its original functionality and pondered over larger questions of long-term socio-economic growth – a methodology that made survey-reading an annual pilgrimage for many (including the author). In essence, the Survey provided ideas for the government and society, to be discussed and implemented over the course of the rest of the financial year. While it is unfair to draw comparisons since the peak-time of the Economic Survey was due to factors outside the defined functions of the document, the apparent collusion of the Survey and Union Budget represents the shrinking space of coexistence of ideals. A reading of the Survey will enable a layman to sift through the key-drivers of government’s agenda – private investment, behavioral change and data.
Since the years of Dr. Arvind Subramanian, there happened to be a clear distinction between the objectives of Volume I and Volume II of The Economic Survey. While Volume II largely focused on a sectoral analysis coupled (maybe) with that of government schemes, Volume I was where the new perspectives to issues took root – the “Twin Balance Sheet Problem”, the “Universal Basic Income”, “JAM” and “Gender Son Meta-Preference” being the finest of many. Volume I of the latest Survey gives space to an analysis of many reforms already in the policy space, however gives analyses or provides defense to a few upcoming legislations or government’s administrative preferences. With a fine data analysis, the survey does make a compelling case for ramping up vacancies in judiciary, strategically nourishing the MSMEs, the national minimum wage and the focus on energy – electric and renewable.
A major highlight of the survey has been the unequivocal focus on private investment. The fact that private investment is a key-driver of economic growth is a universally agreed paradigm. Even with massive increase in FDI caps under ‘Make in India’, CMIE data predicted a 14-year low in investments in the previous December quarter. The survey relies on the growth of Chinese and East Asian Economies to suggest such an economic turnaround for the Indian economy, and the very next day, the Finance Minister proposed to allow 100% FDI for insurance intermediaries. In the previous 2 decades, there have been 2 financial crises – the 2008 Sub-Prime Crisis and the 1997 fall of Asian Tigers. While private investment triggered the latter, absence of FDI in Insurance safeguarded India from the former. The capping of FDI at 49% had been controversial, but the renewed focus on an export-led private investment driven growth doesn’t send rosy signals for the economy. Even as the Survey accepts the 1997 crisis in complete wisdom, it reasons a better monetary framework to safeguard against such turn of events back home. With the unravelling of NPAs and NBFC crisis, the only caution can be to seek alternatives to achieve $5 Trillion mark while exercising maximum possible restraint.
The devotion to ‘nudge’ or behavioral economics has been accurate and reasonable choice with campaigns of basic infrastructural dissemination ongoing in the country. But, while the Economic Survey had turned to East and Oriental texts to reason itself out, the whole idea of ‘nudge’ has also been Indianised with equal credits to the theoretical master – Richard Thaler. To back government’s use of incentives to ‘nudge’, the Surveys reasons out with ‘Swach Bharat Abhiyan’, ‘Beti Bachao, Beti Padhao’, ‘Give it Up!’ and ‘greater tax compliance’. The Survey’s underlined suggestions to take these projects a step-ahead with systematic analysis of the distinction between nudging, incentivising and mandating has been the best that the Survey could have offered. With the focus of the Survey on ‘nudging’ much beyond this chapter and the changing nature of regulatory state, the arrival of behavioral economic theory has been established with much fanfare for the Homo Sapiens.
It has been pretty evident that to solve the mess of jobs, the government hasn’t yet given up on MSMEs. Posing a tweak to the current government policy, the Survey categorises the distinction of dwarfs from the infants. Dwarfs refers to the firms that are small and old, while infants are small but new firms. The Survey sees investment in the ‘dwarfs’ as futile and low-return capacity, mostly due to the 100-worker rule. Infact by investing in firms that have recently started out, the Survey belives that the firms may grow large and contribute more to the economic productivity and job-growth. Similar tweaks include the calculation of the additional judges required across the D&S courts apart from higher appellate bodies to result in a 0 Case Clearance Rate, the need for an elaborate data infrastructure and the upcoming demographic trends – the threat of an ageing population. A fair criticism against the government has been that its administrative measures have been largely to please the EoDB (Ease of Doing Business) matrix and make the long jump in its rankings, while none of such measures have really reflected on the ground. While the Survey gives a pretty easy interpretation of the judicial logjam which has held up the increase in the specific matrix of ‘enforcing contracts’, it is also representative of the half-hearted enthusiasm of the government and its top economists when it comes to the goal of #Economy@5trillion by 2024. The very simplification of the requirement of a 12% nominal growth into a sum of 8% real growth and 4% inflation (as per monetary guidelines), endorsed by the Survey, speaks volumes on the artificial need to achieve the goal as actions have certainly not matched the intention.
The Economic Survey had to step-up to explore avenues the government needs to look into in order to attain a legitimate high growth rate. The Survey could have done well to provide an insight into the required disinvestment mechanisms, the problem with agriculture, the rising need for water-supply, the crisis in NBFCs or fiscal-monetary friction. Infact, in the chapter that addressed the need of proper data, it could have gone a step ahead to defend India’s GDP growth from the onslaught of a predecessor. The lack of intention with which the Survey seeks to address even questions that confluend with the government’s aspiration reflects in the manner the whole target of doubling farmer’s income by 2022 has been addressed. It takes immense struggle to find out a roadmap in line with this particular target, but one does get a hint of the broad idea. Turn to Volume 2, Chapter 7, Annexure 1, and there lies the answer to how the government plans to double farmer’s income – a 7-pronged strategy of “improvement in crop productivity”; “improvement in livestock productivity”; “resource use efficiency (or savings in the cost of production)” ,“increase in the cropping intensity”, “diversification towards high value crops’”,”improvement in real prices received by farmers”; and “shift from farm to non-farm occupations.” This is the roadmap of long-term measures that shall double farmer’s income in 3 years from now. And the question that lingers since the pronouncement of private-investment driven growth model has been the roadmap or analysis of the stressed export situation. If we are drawing comparisons with China, then it’s the export-led growth model that we could have been better suited to explore. When stressing that India should focus on the market share in the global market than trying to insert itself into global supply chains, the Survey again stops short of suggesting or starting discussion on some harsh steps in this direction. Another flaw with the Survey has been its analysis of behavioral change while championing “tax evasion to tax compliance”. The Survey states perceptions of “tax terrorism” often had more to do with the language employed in the communication than any Government action in reality. In reality, tax-terrorism had more to do with the need-based extortion from the evaders by tax authorities in the guise of the threat of the Governmental action. Tax Officers are well ingrained into their territories, and after a point even the threats aren’t required to yield them windfall gains.
The reason that reading Economic Surveys became an annual exercise was to understand the mechanics of economic concepts with complete rationale understanding. The Survey 2018-19 leads you to a point in the text where they need to put in a point stating that economic concepts aren’t fully futile and defend them as important foundations to what it preaches. Mixed with perspectives from religious texts, Kautilya’s Arthashastra, Sanskrit verses, references to Deng Xiaoping and complete disregard of the international precedents, the Survey is economical in its vision.
By Nakul Gupta.