Economic Survey 2018-19— A Survey for the Future

Sujit Kumar
Senior Economist

Economic Survey 2018-19, as presented to the Parliament by Finance Minister, N Sitharaman, details the vision of Modi Sarkar 2.0 of making India a $ 5 trillion economy by 2025. The Chief Economic Advisor(CEA) to Ministry of Finance, K Subrahmanian in his maiden survey has done a remarkable job in mixing academic rigour with policy imperatives for Government having renewed mandate for another five year term.  

The Survey is imaginative in offering solutions of various policy riddles, while drawing from experiences of other economies, especially China and East Asian economies, which grew faster for a considerably long time to successfully transform the living standards of their citizens. India, the CEA reckons, has all the ingredients to emulate that success story in terms of macro-stability, robust institutions, high level of savings and investment rate and most importantly a youthful demography. 

The key to $5 trillion is getting a virtuous cycle of high investment»»» high productivity»»»more exports»»»surplus savings»»»investments. It will create more jobs; increasing the purchasing capacity of people leading to better demand which-in-turn attractfurther investments. The investment needs to be financed through savings, which could mean shifting away from high consumption led model that India has so far. Alternatively, attracting enough capital from foreign sources will remain important. The Survey identifies “policy certainty” as important determinant of investment and growth in economy. 

The CEA has conclusively set aside the hesitation in Indian policymaking about what India should aim at— domestic market or international! The Survey reckons that sustaining a growth of 8% calls for investment and export led growth strategy, as has been successfully demonstrated by China and East Asian tigers. On arguments that global trade is not growing fast enough to accommodate India’s rise, he says, it doesn’t matter, for India should aim at gaining market share by becoming more competitive. 

The CEA identifies some policy priorities for unshackling our growth potential. India needs to reset incentives for micro, small and medium enterprises (MSMEs) so that they gain scale over time and not remain small/dwarf for the sake of policy benefits. The Survey demonstrates that large enterprises, those employing more than 100, account for greater share of employment (75%) and close to 90% of productivity despite accounting for about 15% by number and therefore, it is imperative that "small" aspires and pursues to become "large" with time. Further, it calls for prioritising "young" over "small" as former is more likely to grow fast. The Survey emphasis on labour reforms, on lines of Rajasthan, could well be omen of things to expect in this term of Government. 

There are other important insights and arguments which gives a glimpse of policy priorities, going forward. The Survey has a chapter on application of behavioural economics to policy making, especially avoiding cognitive biases like anchoring bias, failure bias, sunk costs, loss aversion, flawed mental models and confirmation bias. The Survey lauds the Government nudge through Swachh Bharat Abhiyan, which led to near universal coverage of toilets in Indian households, and thus the positive externalities in terms of reduced cases of Diarrhoea, Malaria in kids, and savings on medical expenses for poor. Likewise, Beti Bachao, Beti Padhao scheme has led to significant improvement in sex ratio at birth. This, the Survey explains, could be template for ushering social sector transformation by thoughtful application of incentives and nudges, going forward.

The Survey also emphasises the role of data in delivering better governance experience for citizens. By pooling data across ministries, the Government can improve targeting of beneficiaries of its welfare schemes and help huge savings by weeding out unworthy claimants. It calls for transforming India’s data infrastructure by simultaneously improving data gathering, storage, processing and dissemination. Advocating the case for making data a “public good”, the Survey cautions ‘to not impose the elite’s preference of privacy on the poor, who care for a better quality of living the most’.

Another important paradigm explored in this year’s Survey is Justice Delivery in India, which is plagued by long pendency and inefficiencies across layers of courts. By identifying the requisite capacity to stream-line current flow of cases and expedited resolution of pending cases, the Government can usher better contract enforcement, enhancing ease of doing business, an essential for market based economy.

There is also investigation of policy experiences of earlier years, e.g., Swachh Bharat Mission, MGNREGS, etc., in charting out priorities for future. A chapter is dedicated to improving India’s energy security through affordable, reliable and sustainable energy. The Survey also makes a case for effective minimum wage policy as a tool for more resilient and sustainable economic development. 

To sum up, the CEA, K Subrahmnian has done a commendable job in making the Economic Survey an insightful as well as accessible read for people. He is spot on in indentifying the problems, argues with clarity and his policy advices are borne of rich analysis of data and experiences. If the Budget takes a cue from the Survey, we should expect Government weighing in capital spends as well as giving a roadmap of upcoming policies, viz. exports, MSME, labour reforms, etc., going forward.