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Economic Survey 2019-20 bats for 'pro-business' policy

Jan '20
Pic: Shutterstock
Pic: Shutterstock
India's aspiration of becoming a $5 trillion economy depends critically on promoting 'pro-business' policy that unleashes the power of competitive markets to generate wealth, says Economic Survey 2019-20 released today by the ministry of finance. The Survey suggests weaning away from ‘pro-crony’ policy that may favour specific private interests.

New firm creation in India increased dramatically since 2014, with 12.2 per cent cumulative annual growth rate of new firms in the formal sector during 2014-18, compared to 3.8 per cent during 2006-2014. About 1.24 lakh new firms were created in 2018, an increase of about 80 per cent from about 70,000 in 2014, says the survey.

Government intervention, though well intended, often ends up undermining the ability of the markets to support wealth creation and leads to outcomes opposite to those intended. The survey cites examples of Essential Commodities Act (ECA), 1955; Drug Price Control under ECA; government intervention in grain markets; and debt waivers.

The survey suggests that government must systematically examine areas of needless intervention and undermining of markets; but it does not argue that there should be no government intervention. Instead, it suggests that the interventions that were apt in a different economic setting may have lost their relevance in a transformed economy. Eliminating such instances will enable competitive markets spurring investments and economic growth.

The survey says India has unprecedented opportunity to chart a China-like, labour-intensive, export trajectory. By integrating “Assemble in India for the world” into Make in India, India can raise its export market share to about 3.5 per cent by 2025 and 6 per cent by 2030. It would also result in creation of 4 crore well-paid jobs by 2025 and 8 crore by 2030. Exports of network products can provide one-quarter of the increase in value added required for making India a $5 trillion economy by 2025.

Analysing India's economic performance in 2019-20, the survey states that India’s GDP growth moderated to 4.8 per cent in H1 of 2019-20, amidst a weak environment for global manufacturing, trade and demand. Real consumption growth has recovered in Q2 of 2019-20, cushioned by a significant growth in government final consumption.

Growth for ‘Agriculture and allied activities’ and ‘Public administration, defence, and other services’ in H1 of 2019-20 was higher than in H2 of 2018-19. India’s external sector gained further stability in H1 of 2019-20 with Current Account Deficit (CAD) narrowing to 1.5 per cent of GDP in H1 of 2019-20 from 2.1 per cent in 2018-19.

Headline inflation is expected to decline by year end, though it has increased from 3.3 per cent in H1 of 2019-20 to 7.35 per cent in December 2019-20 due to temporary increase in food inflation.

The survey recommends expeditious delivery on reforms for enabling the economy to strongly rebound in 2020-21.

Click here for key highlights of Economic Survey 2019-20

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