The Economic Survey, 2018-2019: An Overview
Updated: Oct 31, 2019
Authored by: SPRF Research Team
The Economic Survey 2018-2019 serves as an aspirational document for the sustained economic growth of India. The Survey presents a strategic blueprint for a nation of 130 crore citizens aiming to become a 5 trillion dollar economy by 2025. A blue sky thinking underlies the growth model pitched by the Survey, interlinking economic growth, demand, exports and job creation.
Blueprint for India@75
The chapter begins by highlighting India’s achievements with respect to achieving macroeconomic stability, ensuring last-mile delivery of basic welfare services, strengthening the physical infrastructure of the country, and institutionalising fiscal and cooperative federalism.
The Survey emphasises that a real GDP growth rate of 8% (or higher) can be sustained only when the economy is in a constant state of disequilibrium. In such an economy, savings, investment, job creation, demand, and exports exist in a virtuous cycle, constantly feeding into one another. Drawing from the East Asian experience, such an ecosystem will be favourable for private investment to thrive, which will generate more jobs, create better capacity, and increase labour productivity in order to realise India’s economic vision.
Using ‘Nudge’ to Achieve Better Policy Implementation
The Survey explores, in detail, how behavioural changes could lead to better outcomes nationally. ‘Nudge’ can be viewed as a form of intervention which proposes providing positive reinforcements or indirect signalling to achieve favourable results and increased compliance with policy initiatives introduced by the government.
Schemes such as the Swachh Bharat Mission (SBM), Beti Bachao Beti Padhao (BBBP), and the ‘Give It Up’ campaign, all relied on using psychological insights into human behaviour by repeatedly reinforcing conceptualised ‘ideal’ social norms to achieve their target outcomes. The Survey further suggests that behavioural auditing of all schemes be carried out by NITI Aayog.
The chapter highlights the contribution of young firms to employment and productivity levels. In India, young firms are, on average, smaller when compared to older firms. However, both the level of employment creation and productivity does not grow as firms age in India. Despite this, the Indian policy framework protects and nurtures dwarfs (small but old firms) rather than infants (small and young firms with the potential to grow into giants rapidly).
The Survey suggests that size-based incentives that do not factor in the age of companies will remain ineffective. To help MSMEs grow then, a sunset clause of less than ten years needs to be introduced into the schemes which support the growth and rise of MSMEs. There is also a need to fix several inflexible labour laws and regulations, an effort which will assist in increasing job creation. Further, the focus should shift to high employment elastic service sectors such as tourism, which have ripple effects on several other industries such as hotel and catering, transport, real estate, and entertainment.
This chapter in the Economic Survey makes a case for data to be treated as a public good. Profit driven private sector investment in data collection and analysis is on the rise, and companies across industries such as healthcare and financial services are increasingly making data driven decisions. However, there are certain sectors which are still not using and making decisions based on data, such as agriculture. This highlights the need for government intervention.
Integrated data which is collected over a long term time frame will prove to be useful in providing insights needed in policy making through comparisons and correlations. The Survey, further, envisions this data collation system as built on transparency, as well as fully informed consent between the government and the citizen (with legal sanction should there be breaches).
Greater Efficiency in the Lower Judiciary
The chapter highlights the delay in contract enforcement as the single biggest constraint affecting the ease of doing business in India. A majority of these delays can be attributed to inefficient and under-productive performance of the lower judicial courts, which are suffering from a high number of pending cases, and an increased average disposal time per case. The Survey makes prominent recommendations focusing on District and Subordinate courts to improve the scenario.
Increasing the case clearance rate is crucial to eradicating the heavy backlog of cases, and achieving zero accumulation. For this, it is imperative to appoint more judges, especially those with a specialisation in criminal law, alongside establishing the Indian Courts and Tribunal Services. The Survey specifies a need to increase the number of working days, digitise cases, and deploy more technological tools to address human error induced procedural inefficiencies and scarcity of physical resources.
Increasing Investment by Reducing Uncertainty in Economic Policies
The Survey highlights how uncertainty in laws governing investment can hamper investment practices in India. As such, uncertainty exacerbates risk-aversion, increases the premium demanded for assuming risk, and dampens investment. An Economic Policy Uncertainty Index (EPU Index) has been developed to measure the level of policy uncertainty. Both FDI and FII are negatively correlated to a higher EPU, affecting the amount of long-term capital inflows in the country. Investment is also contingent upon the borrowing cost (which is negatively associated with investment), prices that producers get for their products, capacity utilisation, and the volatility of exchange rates.
While applauding the fact that the levels of Economic Policy Uncertainty (EPU) have declined in India since 2015, the Survey suggests measures to be taken moving forward. Policymakers need to ensure the predictability of policy actions, provide guidance on the stance of policy, and maintain consistency between actual policy and forward guidance in order to reduce ambiguity in implementation. In addition, in order to ensure accuracy, the EPU index needs to be taken into account, and must be monitored by policymakers on a quarterly basis. Creation of sub indices will also be pertinent to evaluate fiscal policy efficacy and its implementation.
India @ 2040: Taking Stock of Demographic Changes
The chapter begins by highlighting the scenario of population growth, which is expected to decrease significantly by 2031-41. Over the years, the fertility rate has decreased to 1.6-1.7 in the states of Delhi, West Bengal, Tamil Nadu, Andhra Pradesh, Telangana, Punjab, and Himachal Pradesh. This rate indicates that the average fertility of these states is far below the ‘replacement fertility level’ (2.1) (This is the level of fertility that a population takes to move from one generation to the next).
States that lag behind in fertility rates will also exhibit significantly lower fertility levels as early as 2021. While Jharkhand, Haryana, and Chhattisgarh will have fertility rates as low as 1.8 by 2031, populous states such as Bihar, Uttar Pradesh, and Madhya Pradesh will have fertility rates lower than the replacement fertility level.
The age composition due to low fertility and enhanced longevity will give rise to ‘demographic dividend’ when the working age population (20-59 years) will hit 59% by 2041. Further, states ahead of the demographic transition (Himachal Pradesh, West Bengal, Maharashtra, and Punjab) will witness their ageing population demanding changes in work structure, education, healthcare facilities, and retirement age.
States like Punjab, Maharashtra, West Bengal, and Himachal Pradesh will have a declining working-age population by 2031-41 due to low population growth, while states lagging behind the demographic transition (like Bihar, Uttar Pradesh, and Jharkhand) will show a rise in working-age population. The labour deficit faced by these states is expected to be filled by former ageing states.
Further, the number of school-going children in India will decline by 18.4% between 2021 and 2041. This does not indicate a shift in focus from elementary education to other sectors, rather an insistence on quality rather than quantity of education provided to children.
However, lower population growth and increased longevity will be accompanied with an increase in demand for hospital beds in India across major states, pointing to inadequate healthcare facilities. Additionally, the need for geriatric care will also increase due to the ageing population. Subsequently, enhanced life expectancy over the years is expected to ensure an increase in retirement age across different states of the country.
The projected population decline is expected to signify a massive change in the age-structure, which will, in turn, bear strong implications for the socio-economic structure of the country. Policy makers must necessitate the need to have infrastructure for an ageing population in areas like healthcare by 2021-31, while simultaneously keeping the working age population well-equipped with new developments in areas of urbanisation, climate change, water availability, and energy requirement, among others.
The Swachh Bharat Mission (SBM) - Towards New Challenges
The chapter outlines an infrastructural and behavioural analysis of the SBM. The Survey presents evidence from several independent studies which have highlighted the impact of the SBM on health indicators. For instance, improved sanitation and 100% ODF status under the SBM has been credited with greatly reducing the number of cases of diarrhoea and malaria among children below five years, along with cases of stillbirth and low birth weight.
Further, apart from the construction of toilets, the Survey underlines other aspects of SBM that demand special focus, including cleaning water bodies, sewer construction, scientific waste management, dealing with the plastic menace, and controlling air pollution. It also highlights the training of field agents, appointing sanitation ambassadors to create awareness, and obtaining systematic feedback from users as important steps to achieving the missions targets.
Democratising the Consumption of Energy, and the Shift Towards Sustainable Creation and Consumption
Despite having the world’s second largest population, India’s consumption of primary energy remains at only 6%. Even so, this meagre consumption is not equally distributed across the geography of the nation, which has significant rural-urban and socio-economic differences. The issue of energy poverty correlates to environmental concerns such as drastic air pollution; the lack of access to clean energy sources directly impacts the consumption of unclean pollution causing energy sources, further resulting in air pollution.
A large section of India’s population does not have access to liquified petroleum gas cylinders (LPG), and continues to use traditional fuel systems such as firewood and dung. However, accessibility has improved in light of governmental schemes like the Pradhan Mantri Ujjwala Scheme (providing clean cooking fuel), which is also linked to the ‘PAHAL’ scheme (which uses Direct Benefit Transfer (DBT) to reduce leakages in the transfer of subsidy).
An equally important focus is on the utilisation of energy efficient measures, strengthened by the 2001 Energy Conservation Act, which has led to lower emissions of greenhouse gases and helped save a considerable amount of money. However, it is pertinent to revisit the issue of energy consumption and ensure that newer sectors and industries are also sustainable in their approaches. In terms of energy generation, a move from India’s traditional dependence on coal based thermal energy, to more efficient forms of energy without harming other sectors is necessary. This shift may be observed in India’s encouragement of the use of electrical vehicles, and in the creation of improved infrastructure (battery chargers) in that regard.
Towards an Ever Expanding Usage of Technology in Welfare Schemes
This chapter highlights the benefits of Direct Benefits Transfer (DBT) and underlines the importance of the Aadhar Linked Payments (ALP) mechanism, which has resulted in the better targeting of people, less distortion of muster rolls, and the reduced role of middlemen in providing payments to the people.
Due to the Prime Minister Jan Dhan Yojana (PMJDY), and an increased usage of the JAM trinity (Jan Dhan Yojana, Aadhar number [Unique Identification Number] and Mobile Number), there has been a better targeting of vulnerable sections of society who require employment under the Mahatma Gandhi Rural Employment Guarantee Scheme (MGNREGS), as well as better demand and supply of work under the scheme.
In the end, it recommends using the JAM trinity for other welfare schemes as well, which would result in better monitoring, transparency and accountability in data collation. While digital infrastructure has been created to achieve the same, they may also be used to reach vulnerable sections of society in a constructive way.
Redesigning Minimum Wage in India: Towards a National Minimum Wage
The chapter discusses key challenges around establishing a National Minimum Wage system, in order to tackle the problems of poverty, income inequality, and gender wage gaps.
The Survey highlights 3 levels of complexities around the issue. The first level pertains to the various types of employment available in India; as the Survey says, “there are nearly 429 scheduled employments and 1,915 scheduled job categories for unskilled workers.” This expansion of job categories and wage rates has led to major variations, not only across states, but also within states themselves.
A second set of complexities arises from a lack of uniform criteria for fixing the minimum wage rate, while the third emerges from the problems seen in compliance with the Minimum Wages Act.
While there is data on both sides regarding how minimum wage impacts employment, there is a clear positive correlation between employment and increase in minimum wage. There is, therefore, a need for a well designed minimum wage system, which can be used for both better protecting workers and alleviating poverty, as data from around the world suggests.
The Economic Survey recommends that the Centre set up a National Floor Level Minimum Wage (NFLMW) across 5 geographical regions.
The Survey also suggests a new criterion for setting the minimum wage by simplifying the code on the Wages Bill, and should, thereafter, consider fixing minimum wages based on two factors;
(i) skill category - unskilled, semi-skilled, skilled and highly skilled
(ii) geographical region; or both simultaneously
Other recommendations, such as increasing the coverage to more people (where the wage is regularly adjusted), and using technology to increase efficiency and transparency in disbursal of minimum wage, have been proposed. The Survey also suggests starting a toll free helpline for grievance redressal, thereby ensuring better compliance.