ECONOMIC SURVEY PRIMER

A FEW NUGGETS FROM THE SURVEY – FROM ‘TRUST AS A PUBLIC GOOD’ TO ‘GEO-TAGGING OF ASSETS’ IN ORDER TO PREVENT FRAUDS

INVISIBLE HAND OF MARKET…

The exponential rise in India’s GDP and GDP per capita after liberalisation coincides with wealth generation in the stock market

Sectors that were liberalised grew significantly faster than those that remained closed

Pro-business policies provide equal opportunities to new entrants, enable fair competition, and ease of doing business

Efficiently scale up the banking sector to be proportionate to the size of the Indian economy

…SUPPORTED BY ‘TRUST’ AS A PUBLIC GOOD

Citizens can enjoy its benefits at no explicit financial cost

Non-rival consumption: The marginal cost of supplying this public good to an extra citizen is zero

Trust grows with repeated use and therefore takes time to build

Lack of trust represents an externality, where decision-makers are not responsible for some of the consequences of their actions

EASE OF DOING BUSINESS IMPROVES, BUT...

Continues to trail in parameters such as ease of starting a business (rank 136), registering property (rank 154), paying taxes (rank 115) and enforcing contracts (rank 163)

Enforcing a contract in India takes, on an average, 1,445 days compared to just 216 days in New Zealand, and 496 days in China

Logistics are inordinately inefficient at Indian sea ports. The process flow for imports, ironically, is more efficient than that for exports

Turnaround time of ships in India has been on a continuous decline, almost halving from 4.67 days in 2010-11 to 2.48 days in 2018-19

TO PROTECT CREDITOR’S COLLATERAL, LEVERAGE DATA

Geo-tagging — the process of adding geographical identification such as latitude and longitude to photos, videos or other media — can help lenders keep track of the location of assets

It can also help verify the value of pledged land or property

Integrated data on collateral across all lenders in geography may be particularly useful in curbing doublepledging of collateral

If mandated to share geo-tagged evidence of collateralised assets with their lenders periodically, borrowers would find it difficult for them to remove these assets by stealth

BILATERAL NETTING OF FINANCIAL CONTRACTS

Two counterparties in a financial contract can offset claims against each other to determine a single net payment obligation

Under instances of default, close-out netting enables the non-defaulting counterparty to terminate the financial contract prematurely

Current RBI guidelines require banks to measure credit exposure to a counterparty, based on gross marked-to-market (MTM) exposure instead of net MTM exposure. This increases credit risk for financial market participants

Bilateral netting arrangements could have helped 31 major banks participating in India’s OTC derivatives market save about ~2,257.9 crore in regulatory capital during FY18

DEVELOP OFFSHORE FUND MANAGEMENT INDUSTRY

Financial services exports have remained stagnant, averaging about $5 billion in recent years

The share of financial services exports in overall services exports has almost halved from 4.2 per cent in FY12 to 2.3 per cent in FY19

Generate employment for high-skilled finance professionals, including fund managers and support service providers such as custodians, fund specialists, risk managers, research analytics professionals, and tax advisors

A conservative assumption of 1 per cent management fee (compared to 2 per cent globally) could yield about $2.2 billion in fund management fees in 2020