Economic Survey 2019: Key Highlights Including Focus on MSMEs, Judicial Capacity, Minimum Wages
In what marks the first Economic Survey presented by Chief Economic Adviser Krishnamurthy Subramanian, ahead of the first union budget presentation by the second Narendra Modi-led government, two areas of focus stand out - small and medium enterprises (MSMEs) and judicial capacity.
The survey states an intent to move “from traditional Anglo-Saxon thinking by viewing the economy as being either in a virtuous or a vicious cycle, and thus never in equilibrium”.
To achieve a self-sustaining virtuous cycle the survey lists these are key ingredients...
- Presenting data as a public good.
- Emphasizing legal reforms.
- Ensuring policy consistency.
- Encouraging behavior change using principles of behavioral economics.
- Nourishing MSMEs to create more jobs and become more productive.
- Reducing the cost of capital.
- Rationalising the risk-return trade-off for investments.
The Economic Survey was tabled in Parliament today by Union Minister for Finance and Corporate Affairs, Nirmala Sitharaman.
Nourishing Dwarfs To Become Giants
The Survey notes that firms with less than 100 workers despite being more than 10 years old, or dwarf firms, account for 50 percent of all organised firms in manufacturing but their contribution to employment is 14 percent and to productivity 8 percent. Whereas large firms, with 100 employees or more, account for 15 percent of all firms but contribute 75 percent to employment and close to 90 percent to productivity.
In order to help dwarf firms achieve scale the Survey proposes
- A sunset clause of less than 10 years, with necessary grand-fathering, for all size-based incentives.
- Deregulating labor law restrictions to create significantly more jobs, as evident from Rajasthan.
- Re-calibrating priority sector lending guidelines for direct credit flow to young firms in high employment elastic sectors.
The Survey also focuses on service sectors such as tourism for job creation as that would have spillover effects on other sectors such as hospitality, transport, entertainment, real estate etc...
The other important, and also new, area of focus in judicial capacity. The Survey states that delays in contract enforcement and dispute resolution are the biggest hurdle to ease of doing business as well as higher GDP growth. Most of the pendency, 87.5 percent the Survey notes, is in district and subordinate courts that are plagued by vacancies.
“100 percent clearance rate can be achieved by filling out merely 2279 vacancies in the lower courts and 93 in High Courts.” - Economic Survey
The Survey notes that judicial infrastructure as well as appointment of judges needs special focus in the states of Uttar Pradesh, Bihar, Odisha and West Bengal.
Demographics, Minimum Wages
Among the other highlights of the Survey are -
A sharp slowdown in population growth is expected in the next two decades and the national total fertility rate is expected to be below replacement rate in 2021, the Survey notes. It estimates that the working age population will grow by 9.7 million per year during 2021-31 and 4.2 million per year during 2031-41. This changing demography will see a significant decline in elementary school-going children over the next twenty years. Hence, the Survey says
● States need to consolidate/merge schools to make them viable rather than build new ones.
● Policy makers need to prepare for ageing by investing in health care and by increasing the retirement age in a phased manner.
A New Wage System
The present wage system in India has 1,915 minimum wages for various job categories and yet one in every three workers in India is not protected by the minimum wage law, the Survey points out. Hence, it supports the rationalisation of minimum wages, with a National Floor Minimum Wage notified by the centre, varying across five geographical regions. According to the Survey,
● Minimum wages by states should be fixed at levels not lower than the ‘floor wage’.
● Minimum wages can be notified based either on the skills or on geographical region or on both grounds.
State Of The Economy
The Survey also presents the state of the economy and some of the key takeways are
● India still the fastest growing major economy in 2018-19.
● Growth of GDP moderated to 6.8 percent in 2018-19 from 7.2 percent in 2017-18.
● Inflation contained at 3.4 percent in 2018-19.
● Non-performing assets as percentage of gross advances reduced to 10.1 percent at end December 2018 from 11.5 percent at end March 2018.
● Investment growth recovering since 2017-18: Growth in fixed investment picked up from 8.3 percent in 2016-17 to 9.3 percent next year and further to 10 percent in 2018-19.
● Current account deficit manageable at 2.1 percent of GDP.
● Fiscal deficit of Central Government declined from 3.5 percent of GDP in 2017-18 to 3.4 percent in 2018-19.
● Prospects of pickup in growth in 2019-20 on the back of further increase in private investment and acceleration in consumption.
Noting that the fiscal deficit for financial year 2018-19 was 3.4 percent of GDP and a provisional debt to GDP ratio 44.5 percent, the Survey noted that central government expenditure, as a percent of GDP, had declined by 0.3 percentage points, mostly on account of a fall in revenue expenditure.
“The revised fiscal glide path envisages achieving fiscal deficit of 3 percent of GDP by FY 2020-21 and Central Government debt to 40 percent of GDP by 2024-25.” - Economic Survey
Non performing assets declined whereas credit growth accelerated, said the Survey, noting that 94 cases resolved under the Insolvency and Bankruptcy Code, 2016 involving claims worth rs 1,73,359 crore.
But, financial flows “remained constrained because of decline in the equity finance raised from capital markets and stress in the NBFC sector,” the Survey stated.
- Capital mobilised through public equity issuance declined by 81 percent in 2018-19.
- Credit growth rate y-o-y of the NBFCs declined from 30 percent in March 2018 to 9 percent in March 2019.
In the backdrop of slower growth in world trade, from 4.6 percent in 2017 to 3 percent in 2018, Indian export growth, in rupee terms, increased due to rupee depreciation, whereas imports declined, in FY19.
Exports (including re-exports): Rs 23, 07,663 crore
Imports: Rs 35, 94,373 crore
Top export items continue to be petroleum products, precious stones, drug formulations, gold and other precious metals.
Top import items continue to be crude petroleum, pearl, precious, semi-precious stones and gold.
India’s main trading partners continue to be the U.S., China, Hong Kong, UAE and Saudi Arabia.
On the state of agriculture, the Survey noted that Gross Value Added (GVA) in agriculture improved from a negative 0.2 percent in FY15 to 6.3 percent in FY17 but decelerated to 2.9 percent in FY19.
● Women’s participation in agriculture increased to 13.9 percent in FY16 from 11.7 percent in FY06 and their concentration is highest (28 percent) among small and marginal farmers.
● A shift is seen in the number of operational land holdings and area operated by operational land holdings towards small and marginal farmers.
● 89 percent of groundwater extracted is used for irrigation. Hence, focus should shift from land productivity to ‘irrigation water productivity’. Thrust should be on micro-irrigation to improve water use efficiency.
● Fertiliser response ratio has been declining over time.