A design for wealth creation
SURVEY PREDICTS 2020-21 GROWTH AT 6-6.5% IF REFORMS HAPPEN FISCAL DEFICIT TARGET MAY HAVE TO BE RELAXED TO REVIVE GROWTH INTEGRATE ‘ASSEMBLE IN INDIA’ INTO ’MAKE IN INDIA’ TO BOOST JOBS
The Economic Survey for 2019-20, presented to Parliament on Friday, laid out an agenda for wealth creation in India and sought to ground pro-wealth and pro-business economic policies in India’s economic experience and philosophical traditions. In the Survey’s preface, Chief Economic Advisor K V Subramanian revealed the Survey’s motivation: Prime Minister Narendra Modi’s speech on Independence Day 2019, which highlighted the contributions of wealth creators and that “only when wealth is created will wealth be distributed”. Subramanian argues that liberalisation is a return to India’s “roots” as a market economy, and thus advocates various wealth-boosting reforms in the Survey.
From the macro-economic point of view, the Survey argues that since “the government, with a strong mandate, has the capacity to deliver expeditiously on reforms”, the upside risks to the economy dominate the downside risks. Given the base effect, it thus pegs growth in India’s gross domestic product or GDP in 2020-21 as being in the range of 6 to 6.5 per cent. The Survey admits that meeting the $5 trillion target set by the prime minister will be challenging, given the growth slowdown.
The Survey places primary blame for the slowdown on global factors, saying “the deceleration of India’s GDP growth since 2017 has tracked the decline in world output”. It noted also that some recent research suggested that the length of the business cycle in India was about 13 quarters, perhaps faster during the deceleration phase. Given that history, the Survey predicted a resurgence of growth in the current half of 2019-20.
The Survey also argues, however, that “the stagnation in private corporate investment at approximately 11.5 per cent of GDP between 2011-12 and 2017-18 has a critical role to play in explaining the slowing cycle of growth and, in particular, the recent deceleration of GDP and consumption”. This stagnation is linked to the decline in credit growth from banks.
With important implications for the path of government spending to be outlined in the Union Budget for 2020-21, the Survey argues that boosting sluggish demand and consumer sentiment should be a priority and so “counter-cyclical fiscal policy” — in other words, fiscal slippage — is justified.