Economic Survey 2019 Highlights: Bullish on growth despite tepid numbers

Economic Survey for 2018-19 was tabled in the Lok Sabha on Thursday, a day ahead of the presentation of the Union Budget for 2019-20. The Survey, which is the government’s report card for the year gone by and presents the health of the economy, comes at a time when the economy is slowing and consumption has staggered.

As per data released a few days ago, India's GDP growth came in at 5.8 per cent for the January – March quarter, sharply down from 6.6 per cent in the previous quarter, well below forecasts and the slowest in over four years.

The revised fiscal glide path, as per the Survey released on Thursday, envisages achieving fiscal deficit of 3 per cent of GDP by FY 2020-21 and central government debt to 40 per cent of GDP by 2024-25. The Survey notes the Medium Term Fiscal Policy Statement presented along with the Union Budget 2018-19 aimed to reach the fiscal deficit target of 3.3 per cent of GDP in 2018-19 BE.



"The Survey is in line with expectations... It has carried out a review of the economy has and acknowledged the slowdown. It has set a policy agenda and may translate into policy action over the medium term. The ball is now in the government's court now to take concrete actions," says Devendra Pant, cheif economist, India Ratings & Research.

Here are the key highlights of the Survey:

GDP GROWTH: The Economic Survey for 2018-19 predicts gross domestic product (GDP) growth at 7 per cent for FY20, supported by stable macroeconomic conditions.

“The average GDP growth for India was at 7.5 per cent for the last five years,” the Survey pointed out. India needs to grow at 8 per cent per annum to become a $5 trillion economy by FY25, it said.

INVESTMENT AS GROWTH DRIVER: According to chief economic advisor Krishnamurthy Subramanian, the 8 per cent growth rate is achievable through investment, especially private investment.

“When the economy is in a virtuous cycle, investment, productivity growth, job creation, demand and exports feed into each other and enable animal spirits in the economy to thrive,” it said.

JOBS: The Survey underscored importance of supporting dwarf, or smaller firms, to create jobs.

Focusing on incentives to infant firms, i.e. firms less than ten years of age, with the appropriate grandfathering of the existing pattern of incentives to MSMEs will lead to job creation in India, the Survey said.

Pant of India Ratings & Research believes that it was important for the CEA to talk about MSMEs and highlight their situation of staying "small" over the years.

INTEREST RATES: The Survey added that the accommodative stance of the Reserve Bank of India (RBI) will help to reduce real lending rates in the financial sector. The RBI in its June Monetary Policy Committee (MPC) meeting slashed repo rate for a third consecutive time. The RBI cut rates to 5.75 per cent along with changing stance to accommodative from neutral. An accommodative stance indicates that the rate increase is off the table, said RBI Governor Shaktikanta Das. 

NON-PERFORMING ASSETS: The Survey expects the decline in non-performing assets (NPA) to lead to capital formation.

According to the bi-annual report, stress tests done on public sector banks (PSBs) revealed that GNPA ratio may decline to 12 per cent by March 2020 from 12.6 per cent in March 2019. Private sector banks too could see a fall in GNPAs to 3.2 per cent from 3.7 per cent during the same period.

OIL PRICES: The Survey expects the oil prices to decline 2019-20, which in turn, would push consumption in the economy. It, however, does not rule out the possibility of an “upward pressure” due to rising global growth, which can impact the government’s fiscal math.

Oil prices, recently, have dipped on concerns on global growth. A slowdown in China and Sino-US trade tensions have negatively affected oil prices.

TRADE WAR: The Survey said that increased uncertainty over trade tensions and lower global growth could hit exports and suggested that an aggressive export strategy must be part of investment-driven model.

CONSUMPTION: Rural wages growth which was declining seems to have bottomed out and has started to increase since mid-2018. Pick up in food prices should help in increasing rural incomes and spending capacity and hence rural consumption demand, the Survey said.

EXPORTS: It warned that prospects of export growth remained weak for 2019-20 if status quo is maintained.

“However, reorientation of export policies to target countries/markets based on our own relative comparative advantage and the importing country’s exposure to Indian goods can foster export performance,” it said.

MINIMUM WAGE SYSTEM: Economic Survey calls for redesigning a Minimum Wage System. Suggests recommendations for an effective design.

"Rationalisation of minimum wages as proposed under the Code on Wages Bill needs to be supported. This code amalgamates the Minimum Wages Act, 1948, the Payment of Wages Act, 1936, the Payment of Bonus Act, 1965 and the Equal Remuneration Act, 1976 into a single piece of legislation. The definition of ‘wage’ in the new legislation should subsume the present situation of 12 different definitions of wages in different Labour Acts," the Survey said.