Economic Surveys way off mark in projecting outlook in recent years

Many of their ideas, such as DBT, diesel deregulation, bad bank, flexible inflation targeting have been launched, some of them partially; others such as UBI, printing more money haven't taken off

Economic surveys are essentially prescriptions made by the economic advisors in the finance ministry, led by the chief economic advisor. This time, there is no chief economic advisor, as was the case when the Modi government assumed office in 2014. In recent times, even before Covid hit the economy, making projections for the next year, particularly for GDP growth, has become tricky. Of the eight surveys presented during the Modi regime so far, three predicted either a somewhat correct number or underestimated the actual growth. One was presented when the base year was changed in between. The remaining four, all presented during the past four years, were way off the mark in predicting growth numbers. Let us analyse each of these surveys five days ahead of presentation of the one for 2021-22 in Parliament:

Economic Survey for 2013-14:

This survey was authored by a team led by Arvind Mayaram, then economic affairs secretary. One should note that the Survey projects economic growth for the next year and generally takes GDP expansion for the current year from the advance estimates. In this respect, this survey seems to really underestimate economic growth (see chart). However, by the time actual numbers for GDP came, the methodology for computing it had changed. Now, GDP was calculated at market prices (which includes indirect taxes) unlike factor cost (sans indirect taxes), which had been the practice till then. Besides, value addition is taken into account in various sectors such as agriculture, industry, services from the supply side of the computation.

The survey called for de-regulating diesel prices. In fact, this recommendation was implemented in October of that year.

The survey focused on reviving investment. It said this required a three-pronged approach that worked on improving India's long-term growth prospects. This strategy was to work through ensuring low inflation by putting in place a framework for monetary policy, fiscal consolidation, and food market reforms. It mentioned the Urjit Patel Committee's recommendation of reining in inflation at 2-6 per cent. The monetary policy committee of the Reserve Bank of India was set up with this mandate later in June 2016.

The survey called for tax reforms through the goods and services tax (GST) and direct taxes code. While GST came over three years later, the direct taxes code was shelved a year after. Only in 2017, the government appointed a committee under Central Board of Direct Taxes member Arbind Modi to redraft direct taxes. Its report was also junked and another committee was appointed under then CBDT member Akhilesh Ranjan. Though the committee has submitted its report, its report was also junked. Meanwhile, both Modi and Ranjan have retired.

Economic Survey, 2014-15:

This was the first survey under then chief economic advisor Arvind Subramanian. Taking inspiration from the International Monetary Fund's World Economic Outlook, this Survey departed structurally from its predecessors and was presented in two volumes. Volume one discussed the outlook and prospects as well as a number of analytical chapters addressing topical policy concerns. Volume two described recent developments in all the major sectors of the economy and contained all the statistical tables and data. In a sense, volume one was forward-looking but gained from the perspective provided by the recent past, which was the subject of volume two.

The survey was close to predicting the correct GDP growth number, though closer to the lower end of its range. Against its prediction of 8.1-8.5 per cent range, the actual GDP growth turned out to be eight per cent.

The survey focused on the trinity of Jan Dhan, Aadhaar, and Mobile (JAM). The government has really moved ahead with the concept and implemented it.

So far, the government has transferred close to Rs 21 trillion through direct benefit transfer (DBT) cumulatively. During 2021-22 alone, it has given Rs 4.53 trillion to beneficiaries. The government claimed that gains worth Rs 2.23 trillion have been made during the current financial year so far by reducing pilferage etc. While it used 312 schemes in 54 ministries to transfer the money, DBT in the sense of money transfer to beneficiary accounts could not be implemented in major schemes such as public distribution system and fertiliser subsidy. While DBT was piloted in Puducherry and Chandigarh in PDS, it ran into rough weather. In fertiliser subsidy too, the beneficiaries were identified through Aadhaar card, but it is not used for DBT.

Economic Survey, 2015-16:

Economic growth for 2016-17 turned out to be much higher, at 8.3  per cent, than predicted by this survey (7-7.5 per cent) despite demonetisation. This may also be due to the revisions in the growth rate in the later years. Though one may say this survey was also off the mark in predicting the number, underestimating the growth rate would not have had as disastrous an impact as overestimating it.

The survey talked of creating a more competitive environment by addressing the exit (Chakravyuha) problem that bedevils the economy and is an impediment to investment, efficiency, job creation and growth. The government later enacted the Insolvency and Bankruptcy Code of India. Rules on bankruptcy are yet to be notified to deal with individual and non-corporate cases. The survey also talked about major investments in people--their health and education--to reap the demographic dividend.

However, the allocations are yet to see any major uptick in terms of their proportion to GDP. The National Education Commission (1964-66), popularly known as Kothari Commission, had recommended a six per cent GDP expenditure on education. The latest draft of the National Education Policy 2019 states that the government has never been able to meet the target. The National Health Policy of 2017 wanted the Centre and states to spend 2.5 per cent of GDP on the health sector, but the share has remained more or less constant at 1.15 per cent.

Economic Survey, 2016-17:

The actual economic growth rate for 2017-18 fell between the range predicted by this survey (see chart).

The survey segregated the time of presenting Volume-1 and Volume-2. Volume-1 was presented in February 2017 after the government announced demonetisation in November 2016. Volume-2 was presented in August 2017, a month after the GST was introduced.

The first volume talked of doing full justice to demonetisation and then proposed GST, or else it risked being "Hamlet without the Prince of Denmark". It said that while analyzing demonetisation was complex, one could definitely say that there were short-term costs; however, there were also potential long-term benefits. The survey suggested that appropriate action could help minimize the former and maximize the latter.

The Survey advocated the concept of Universal Basic Income (UBI) as an alternative to the various social welfare schemes in an effort to reduce poverty. It pointed out that the two prerequisites for a successful UBI are: (a) functional JAM (Jan Dhan, Aadhar and Mobile) system as it ensures that the cash transfer goes directly into the account of a beneficiary and (b) Centre-State negotiations on cost sharing for the programme. The UBI idea still remains in the conceptual stage. One may argue that PM Kisan Samman Nidhi which transfers Rs 2000 to every farmer in a quarter is also a kind of UBI, albeit confined to the farm sector alone.

The survey proposed the setting up of a public sector asset rehabilitation agency (PARA), which is essentially a centralized bad bank. The idea was discussed repeatedly but could be implemented in 2021-22. The bad bank, National Asset Reconstruction Company Limited and asset management company , the India Debt Resolution Company Limited, were announced in 2021. However, the Reserve Bank of India's approval for the implementation of the dual structure is still awaited. 

Economic Survey, 2017-18:

From here onwards, the surveys could not project the economic growth rate correctly and overestimated it by a huge margin. Against its projection of 7-7.5 per cent, the GDP growth rate turned out to be just 6.5 per cent for 2018-19. The survey suggested quick remonetisation, push for digitisation, bringing land and real estate under GST ambit, reduction in taxes and stamp duties and an improved tax administration system as key reform measures to ensure long-term economic benefits. Among these recommendations, bringing land and real estate under the GST domain remains a challenge. However, income tax rates, both personal and corporate, were reduced drastically. Also, a faceless system of assessment was kicked in income tax which is a major tax administration reform.

Economic Survey, 2018-19:

The first survey, authored by the current chief economic advisor Krishnamurthy Subramanian, was way off the mark in predicting GDP growth rate. The economy grew at the rate of just four per cent against seven per cent projected by the survey. This was probably due to the slowdown which had cast its shadow on the economy, and the initial impact of Covid-19.

The survey proposed a well-designed minimum wage system as a potent tool for protecting workers and alleviating poverty, saying the present structure has 1,915 minimum wages for various scheduled job categories across states.

The government did enact a law on minimum wages in August 2019, but it awaits implementation since the code on wages along with three other labour codes are yet to be notified.

Economic Survey, 2019-20:

The year 2020-21 is a difficult year for anyone to predict in the beginning of the calendar year 2020. That's Why the survey, tabled in Parliament in January end, projected the economy to grow by 6-6.5 per cent. However, the economy contracted by more than this rate -- 7.3 per cent.

The survey recommended aggressive divestment of central public sector enterprises (CPSEs). It suggested the government take a leaf out of Singapore’s Temasek model and transfer its holdings in central public sector enterprises to a separate corporate entity, which would be managed by an independent board. This entity can then continue to divest individual units at appropriate points in time. The aim of any privatisation or disinvestment programme should be maximization of the government’s equity stake value, the survey said, while proposing the new structure.

The Budget for 2020-21, tabled in Parliament a day after the survey was presented, did project an aggressive disinvestment and strategic sales which would fetch the government Rs 2.10 trillion in the year. However, the government is nowhere close to the target with the mop up standing at close to Rs 32,000 crore in the Revised Estimates.

The survey also suggested solutions that can make public sector banks more efficient. To incentivize employees and align their interests with that of all shareholders of banks, bank employees should be given stakes through an employee stock ownership plan (ESOP) together with proportionate representation on boards proportionate to the blocks held by employees, it suggested. While banks have started giving ESOP to employees, the board representation is nowhere in sight.

The survey came out with the concept of “thalinomics” to gauge the money that a common person pays for a vegetarian or non-vegetarian thali. Using the annual earnings of an average industrial worker, the survey found that the affordability of vegetarian thalis improved 29 per cent from 2006-07 to 2019-20, while that of non-vegetarian thalis improved by 18 per cent. Basically, it defended the Modi government's inflation management control. With the government providing free food grains through PDS to the vulnerable sections in the Covid years of 2020-21 and 2021-22, thali for those having PDS grains must have come down. But, for those who are out of PDS scheme, thali prices must have gone up in 2020-21 up with food and beverages inflation standing at 6.95 per cent that year. However, food and beverages inflation came down to 3.57 per cent in the first nine months of 2021-22.

Economic Survey, 2020-21:

The Economic Survey projected the growth rate of 11 per cent for the current financial year. However, the survey could not predict the devastating second wave of Covid. The first advance estimates have put it at 9.2 per cent. Many economists believe that the official estimates have not taken into account the full impact of Omicron. As such, the growth rate could come down further.  

The survey suggested printing more money, saying it does not necessarily lead to inflation and a debasement of the currency but could -if invested in projects with positive societal value-- actually be beneficial to citizens. Various views were expressed for both in favour and against its favour. However, RBI governor Shaktikanta Das junked the idea in June, when he said there was no plan to print more currency notes.

Table: Economic Survey: Projected versus actual economic growth

Economic Survey	Economic growth projected for next year in % YoY	Actual economic growth in % YoY
2013-14	5.4-5.9*	7.4
2014-15	8.1-8.5	8.0
2015-16	7,0-7.5	8.3
2016-17	6.75-7.5	6.8
2017-18	7.0-7.5	6.5
2018-19	7.0	4.0
2019-20	6.0-6.5	-7.3
2020-21	11.0	9.2**

Notes:

* Base year is 2004-05, the base year is 2011-12 for all others including actual growth in 2014-15

** Advance Estimates for 2021-22

Source: Economic Surveys and MoSPI