As a report card-cum-blueprint for the future, Chief Economic Adviser (CEA) Krishnamurthy Subramanian’s Economic Survey 2019-20 is a mixed bag of interesting diagnosis combined with some optimistic prognostication. Seven months after his maiden survey, he finds himself again having to assess the economy’s health and provide signposts for the agenda ahead. And the CEA, who in July projected real GDP growth rebounding to 7% this fiscal, acknowledges that 2019 was a difficult year for the global economy, including for trade and demand, and by extension a challenging period for the Indian economy as well. The Survey concedes that “a sharp decline in fixed investment induced by a sluggish growth of real consumption” has weighed down growth, which the National Statistical Office now estimates at 5% for the 12 months ending in March. The stress in the non-bank financial industry and decline in credit growth that the IMF flagged in January when it cut its India growth estimate for the current fiscal to 4.8%, from October’s 6.1%, find reflection in the Survey. Interestingly, a chapter devoted to “Financial fragility in the NBFC sector” recommends a dynamic health index that policymakers can use as an early warning system to avert incipient liquidity crises in this key credit providing sector.
Listing downside risks to next fiscal’s outlook including continuing global trade uncertainties, escalation in West Asian geopolitical tensions, slow pace of insolvency resolution and the possibility of further fiscal pressure crowding out private investment, the CEA, however, takes a leap of faith. In forecasting growth rebounding to a 6.0-6.5% range , he reiterates an expectation from his previous survey: given the government’s strong mandate, it ought to expedite reforms. The Survey also makes a political statement on Budget eve. Expect more policy incentives for “Wealth creation”. Featuring as a central theme of the first volume, the Survey asserts that India’s vaunted historical economic dominance was reliant “on the invisible hand of the market for wealth creation” supported by ethical practices that engendered trust. To ensure smoother functioning of markets as creators of wealth, the Survey makes several policy prescriptions. Contending that government interventions hurt more than they help, it recommends scrapping the Essential Commodities Act — enacted in 1955 when famines and shortages were the concern. Similarly, it asserts that the Drug (Prices Control) Order of 2013 has failed to achieve its aim of making drugs affordable and needs to go. And the CEA wants a complete review of the policy on foodgrains, which he argues has made the government the largest “hoarder” thereby distorting these markets. All are suggestions that traders and market players, a key electoral constituency, will cheer, but may be fraught with risks.