The Economic Survey 2019-20 was tabled in the Parliament by the Finance Minister Smt. Nirmala Sitharaman yesterday after a joint address by President Ram Nath Kovind to both Lok Sabha and Rajya Sabha. The Economic Survey presents a review of the developments in the economy over the last year while presenting an outlook for the next financial year. The theme of this year’s survey is wealth creation, promotion of pro-business policies and strengthening of trust in the economy.
Here are some major highlights of the Survey:
- GDP growth pegged at 6-6.5% for FY21, up from 5% in FY20
- Uptick in growth projected in second half of current fiscal (FY20) based on 10 factors including higher FDI flows, build-up of demand pressure, positive GST revenue growth
- Fiscal deficit target for current fiscal may need to be relaxed to revive growth
- To achieve GDP of $5 trillion by 2024-25, India needs to spend about $1.4 trillion over these years on infrastructure
- Share of formal employment increased from 17.9% in 2011 -12 to 22.8% in 2017-18 reflecting formalisation in the economy.
- 62 crore new jobs created in rural, urban areas between 2011-12 and 2017-18 among regular wage/salaried employees
- 8% increase in regular employment of women in 2017-18 over 2011-12
- Gross FDI equity inflows into the Computer Software & Hardware sector increased from USD 2541 million (Apr-Sep 18) to USD 4025 million (Apr-Sep 19)
- India’s services trade surplus was largely driven by surplus in software services & financed about 48% of India’s merchandise deficit during April-September 2019
Pro-business policy & Ease of doing business
The Survey notes that there was a breakdown of trust in the early years of this millennium and introduces the concept of trust as a public good. In line with this idea, it strongly argues for pro-business policies versus pro crony policies and emphatically states that ethical wealth creation is key to India becoming $5 trillion economy by 2025.
It also cautions against unnecessary government intervention and provides some examples to illustrate how Government intervention, in certain cases, has hurt more than it helped. It notes that India, inspite of huge improvement in World Bank’s EoDB ranking, still has a high density of legislation and statutory compliance requirements in manufacturing and argues for further efforts in improving Ease of doing business.
The Survey notes that India harbours misplaced insecurity on the trade front. The Survey argues that India has benefitted out of trade agreements and calls for an enabling trade policy. It notes that “China’s remarkable export performance is driven primarily by deliberate specialization at large scale in labour-intensive sectors, especially “network products”, where production occurs across Global Value Chains (GVCs) operated by multi-national corporations”. Following this strategy, India should bring down the custom duties of intermediate inputs of Network products to zero or negligible rate, it suggests. The Survey also notes that a pro-active FDI policy is critical to be part of the Global Value Chains, as these are driven by MNEs.
On corporate tax, the survey notes that reduction in corporate tax rate to 15% for new manufacturing companies may increase the rate of return on investment above the hurdle rate of the cost of capital and encourage a surge in new investments.
On GST, the survey notes that widening of tax base due to increase in the number of indirect tax filers in the GST regime has also led to improved tax buoyancy. Gross GST collections, Centre and States taken together, was INR 8.05 lakh crore in April to November 2019, which is an increase of 3.7 per cent over the corresponding period last year. It notes that the increase in GST collections may be a result of government efforts which includes extensive automation of business processes, application of e-way bill mechanism, targeted action on compliance verification, enforcement based on risk assessment and the proposed introduction of electronic invoice system.
Banking and Finance
In 2019, India completed the 50th anniversary of bank nationalization. Since 1969, India has grown leaps and bounds to become the 5th largest economy in the world. Yet, India’s banking sector is disproportionately under-developed given the size of its economy, said the Survey. Therefore, it suggests use of FinTech (Financial Technology) across all banking functions and employee stock ownership across all levels to enhance efficiencies in Public Sector Banks (PSBs). These will make PSBs more efficient so that they are able to adeptly support the nation in its march towards being a $5 trillion economy, suggested the Survey.
With the cleaning up of the banking system and the necessary legal framework such as the Insolvency and Bankruptcy Code (IBC), the banking system must focus on scaling up efficiently to support the economy. According to the Survey, a large proportion of non-performing assets (NPAs) of Indian banks, especially PSBs, could have been prevented if data and analytics were employed in corporate lending. Thus, it proposes establishment of a GSTN like entity, called PSBN (PSB Network), to use technology to screen and monitor borrowers comprehensively and at length. Apart from utilizing data from all PSBs, which would provide a significant information advantage, PSBN would utilize other Government sources and service providers to develop AI-ML ratings models for corporates. The AI-ML models can not only be employed when screening the corporate for a fresh loan but also for constantly monitoring the corporate borrower so that PSBs can truly act as delegated monitors, it said.
The Survey identifies three significant developments in the IT-BPM sector in the current financial year. Gross FDI equity inflows increased from USD 2541 million (Apr-Sep 2018) to USD 4025 million (Apr-Sep 2019) in Computer Software and Hardware sector. Secondly, India’s services trade surplus was largely driven by surplus in software services which financed about 48% of India’s merchandise deficit during April-September 2019. Thirdly, the Survey recognises that India’s Software Services exports formed the largest portion of the pie of India’s total services exports. The Survey notes that the share of Software Services exports was twice that of the second largest services exports, namely, Business Services exports.