VisionIAS
12:22
Eco Survey every year is presented by the Chief
Economic Advisor and this time too Arvind Subramaniam has done it.
Eco Survey is comprised of two volumes
where Volume 1 and Volume 2. Volume 1 contains the analytical overview and more
research-cum-analytical material. Volume 2 provides the more descriptive review
of the current fiscal year, encompassing all the major sectors of the economy.
A large part of Volume 1 focused on what are perhaps more long-term challenges.
The pink color of this year’s
survey cover was chosen as a symbol of support for the growing movement to end
violence against women, which spans continents.
Volume 1 has been divided into 9 chapters.
Chapter 1 State of the Economy: An Analytical
Overview and Outlook for Policy
This chapter discusses recent happenings in the
Indian economy and prioritizes events for short and medium term. It laid plans
to achieve 8 percent growth and also discusses the deviation of Indian economy
from the World Economy in performance.
Short term:
After the implementation of both Demonetization and
GST India lagged the world for the first half of the year due to additional
reasons of consequences of Twin Balance Sheet Problem(TBS), rising real
interest rates and fall in food prices resulting in lessening of Agricultural
Income. In the second half, revival was seen, and two major events happened.
India moved ahead in rankings of ease of doing business by 30 points and a
rating Upgrade by Moody’s after 14 years.
In this period FDI inflow increased by 20 percent.
Tackling TBS:
To tackle the problem of TBS government proposed
two things
1. A new Indian Bankruptcy Code (IBC) helping
Corporates to clean up their balance sheets
2. A recapitalization of banks of 2.2 lakh crores to
revive investments in the economy with higher capital to disburse in their
hands.
These are 2 R’s Resolution and Recapitalization out
of the total 4 R’s to tackle TBS- Recognition, Resolution, Recapitalization and
Reforms.
Medium term:
Issues to be addressed in the medium term include
common agricultural market, integrate electricity markets, inter-state water
disputes, implement direct benefit transfers (DBT), provide access to social
benefits across states, and reduce air pollution.
Macro Economy to be taken care of by addressing
Current and Fiscal Deficits in the situations of rise in the oil prices.
To increase Tax-GDP ratio where there is a high
economic growth. This is possible with GST.
Reviving Manufacture structure with twin aims of
make in India and increase competitiveness of Indian manufacturing. Policy
changes have been witnessed to result in improvement of exports and GST council
has to take a comprehensive approach on policy to reduce export taxes.
Outlook for 2017-18
· High
frequency indicators like overall GVA, manufacturing GVA, the IIP, gross
capital formation and exports indicating that robust growth is about to take
place. Manufacturing exports and imports in the second and third quarters of
this fiscal year has started to improve. Export growth of 13.6 percent in the
third quarter of FY2018 and reduction of import growth to 13.1 percent also
suggest the same.
· Headline
inflation for the first time crossed the RBI’s 4 percent target in November,
posting a rate of 5.2 percent in December 2017.
· The
current account deficit has also widened but is well below the target of 3
percent.
· foreign
exchange reserves have reached a record level of about $432 billion.
· The
fiscal deficit for the first 8 months of 2017-18 reached 112 % of the total for
the year, above the 89 % i.e average of last 5 years, because of reduction in
non-tax revenue i.e reduced dividends from government Undertakings.
· Personal
income tax collections increased from 2 percent to 2.3 percent.
Chapter 2. A New, Exciting Bird’s Eye View of the
Indian Economy Through the GST
· The
GST has increased the number of unique indirect taxpayers by more than 50
percent from 6.4 million to 9.8 million.
· On
the question of whether the tax base shifted from manufacturing states to
consuming state the answer from the initial data shows ‘no’.
· Firms
are placed in five categories based on their annual turnover. less than Rs. 20
lakhs;,Rs. 20-100 lakhs small and micro enterprises (SMEs), Rs. 1-5 crore;
medium, Rs. 5-100 crore; and large firms above Rs. 100 crore.
· State-wise
distribution of international exports of goods and services data was first time
found due to GST Data.
· Five
states—Maharashtra, Gujarat, Karnataka, Tamil Nadu, and Telangana—respectively
account for 70% of India’s exports. A state’s GSDP per capita is highly
correlated with its export share in GSDP for the major 20 states
· Internal
trade is about 60 percent of GDP.
· Formality
in terms of the GST, indicates a formal sector employment as 53 percent, of the
non-agricultural work force.
Chapter 3. Investment and Saving Slowdowns and
Recoveries: Cross-Country Insights for India
· The
government has taken various steps for boosting growth, controlling inflation
and curbing corruption as part of structural reforms intended to achieve 8-10
percent growth.
· The
ratio of gross fixed capital formation to GDP increased from
26.5 percent in 2003, reached a peak of 35.6 percent in 2007, and then slid
back to4 percent in 2017.
· The
ratio of domestic saving to GDP has registered a similar
evolution, rising from 29.2 percent in 2003 to a peak of 38.3 percent in 2007, 29
percent in 2016.
· Private
investment and household or government savings are the to sectors responsible
for the decline in investment or savings.
· There
has been a shift from currency and bank deposits towards market instruments
· Savings
do not necessarily see sustained growth improvements. but countries that see
growth transitions see sustained higher rates of saving.
· While
studying investment it has been noted that, a one percentage point fall in
investment rate is expected to dent growth by 0.4-0.7 percentage points.
Chapter 4. Reconciling Fiscal Federalism and
Accountability: Is there a Low Equilibrium Trap?
“The state’s role is to create the conditions for
prosperity for all by providing essential services and protecting the less
well-off via redistribution. The citizen’s part of the contract is to hold the
state accountable when it fails to honor that contract.”
· Direct
taxes are more felt by the people and they leave people with less disposable
income. Direct taxes are collected at various levels.
· Central
level: India has the lowest share of direct tax collection in overall taxes.
· State
level: Taxes are collected by the centre on behalf of the states and devaluated
on basis of Finance commission.
· Local
level: Rural local govts collect round 6 percent of direct taxes of their total
taxes and panchayats around 4 percent. Countries like Brazil and Germany
collect for these levels at around 20 to 40 percent.
· Urban
local governments have been in excess of revenue share while compared to world
countries and direct tax collection is also in line with them.
· The
central and state governments spend on an average 15-20 times more per capita
than do RLGs. ULGs spend about 3 times more. More importantly, this gap has
persisted over time despite percapita spending by RLGs increasing almost
four-fold since 2010-11.
· Even
though most states have constituted State Finance Commission SFCs, very few
seem to have accepted their recommendations.
Chapter 5. Is there a “Late Convergence Stall”
in Economic Development? Can India Escape it?
Poorer countries are growing faster than richer
countries leading to “economic convergence”.
There is a fear that there can be a slowdown in this process of convergence for countries like India.
There is a fear that there can be a slowdown in this process of convergence for countries like India.
Reasons:
1. backlash against globalization,
2. difficulties of transferring resources from low
productivity to higher productivity sectors,
3. challenge of upgrading human capital to the demands
of a technology-intensive workplace,
4. coping with climate change-induced agricultural
stress.
In 1960, India was a low-income country.
In 2008 we attained lower middle-income status and if
per-capita income grows at 6.5% per year, we would reach upper-middle
income status by 2020.
Reasons for middle income trap:
· Country
would be squeezed out of manufacturing and other dynamic sectors by poorer,
lower-cost competitors.
· Lack
the institutional, human, and technological capital to carve out niches higher
up the value-added chain.
The risk of a Late Convergence Stall needs
to be taken seriously because of four headwinds:
1. Hyper (rapid) Globalization Repudiation
2. The Difficulties of Structural Transformation
3. Human Capital Regression
4. Climate Change-induced Agricultural Stress
There is no Late Converger Stall, as yet, but it
would be wise to act to head it off.
Chapter 6. Climate, Climate Change, and Agriculture
This chapter discusses a long-term trend of rising
temperatures, declining average precipitation, and increase in extreme
precipitation.
Pradhan Mantri FasalBima Yojana should be read in
detail here.
Farm revenues declining for several crops despite
increase in production and fall in market prices below the Minimum Support
Price. Productivity has to be increased while price and income volatility has
to be reduced.
1. Shortages of water and land, deterioration in soil
quality, and climate change-induced temperature increases and rainfall
variability, are going to impact agriculture.
2. In the period after the global agricultural commodity
surge, growth increased to 3.6%.
3. The volatility of agricultural growth in India has
declined substantially over time and production of cereals has become more
sustainable to drought.
Climate change effect on crop and farm income
4. Crops grown in rain-fed area pulses in both kharif
and rabi are vulnerable to weather shocks while
5. The cereals both rice and wheat are relatively more
immune.
6. 1°C increase in temperature reduces wheat
production by 4 to 5%.
7. Extreme temperature shocks reduce farmer incomes by
4.3% and 4.1% whereas extreme rainfall
8. shocks reduce incomes by 13.7% and 5.5% during
kharif and rabi respectively.
9. when rainfall levels were 100 mm less than average,
farmer incomes would fall by 15% during kharif and by 7% during the rabi
season.
10. A study by the IMF, finds that for emerging market
economies a 1°C increase in temperature would reduce agricultural growth by
1.7%, and a 100 mm reduction in rain would reduce growth by 0.35%.
11.Farmer income losses from climate change could be
between 15 % and 18 % on average, rising to anywhere between 20 % and 25 % in
un-irrigated areas.
12. “More crop for every drop” campaign hold the key
future to Indian agriculture.
Chapter 7. Gender and Son Meta-Preference: Is
Development Itself an Antidote?
Over the last 10-15 years, India’s performance
improved on 14 out of 17 indicators of women’s
agency, attitudes, and outcomes. On seven of them, the improvement has been such that India’s
situation is comparable to that of a cohort of countries after accounting for levels of development.
agency, attitudes, and outcomes. On seven of them, the improvement has been such that India’s
situation is comparable to that of a cohort of countries after accounting for levels of development.
On several other indicators, notably employment,
use of reversible contraception, and son
preference, India has some distance to traverse because development has not proved to be an antidote.
preference, India has some distance to traverse because development has not proved to be an antidote.
While there is considerable variation within the
Indian states and across dimensions, the broad pattern is one of the
North-Eastern states doing substantially better than the hinterland states even
in development time; hinterland states are lagging, some associated with their
level of development and some even beyond that; surprisingly, some southern
states such as Andhra Pradesh and Tamil Nadu fare worse than expected given
their level of development.
There is another phenomenon of son meta-preference
which involves parents adopting fertility “stopping rules” – having children
until the desired number of sons are born. This meta-preference leads naturally
to the notional category of “unwanted” girls which is estimated at over 21
million.
In some sense, once born, the lives of women are
improving but society still appears to want fewer of them to be born.
Most North-Eastern states (with the exception of
Tripura and Arunachal Pradesh) and Goa are the best performer. Kerala comes
next.
The lagging performers are Bihar, Rajasthan, Madhya
Pradesh, Uttar Pradesh, Jharkhand and, surprisingly, Andhra Pradesh.
The worst Indian score is 57.6 (Bihar) and the best
is 81 (Sikkim)
Increased incomes of men allow Indian women to
withdraw from the labor force, higher education levels of women also allow them
to pursue leisure.
Son Preference: Skewed Sex Ratio at Birth (SRB)
Most striking is the performance of Punjab and
Haryana where the sex ratio (0-6 years) is approaching 1200 males per 1000
females, even though they are amongst the richest states.
Son “Meta” Preference: Sex Ratio of Last Child
(SRLC) and “Unwanted” Girls
While active sex selection via fetal abortions is
widely prevalent, son preference can also manifest itself in a subtler form.
Parents may choose to keep having children until they get the desired number of
sons. This is called son “meta” preference. A son “meta” preference – even
though it does not lead to sex-selective abortion – may nevertheless be
detrimental to female children because it may lead to fewer resources devoted
to them.
the sex ratio of the last child for first-borns
is 1.82, heavily skewed in favor of boys compared with the ideal
sex ratio of 1.05.
gender outcomes exhibit a convergence pattern,
improving with wealth to a greater extent in India than in similar countries so
that even where it is lagging it can expect to catch up over time.
The state and all stakeholders have an important
role to play in increasing opportunities available for women in education and
employment. Understanding the importance of its role, the government has
launched the BetiBachaoBetiPadhao and Sukanya Samridhi Yojana schemes.
Chapter 8. Transforming Science and Technology
in India
Innovations in science and technology are integral
to the long-term growth and dynamism of any nation. The pursuit of science also
creates a spirit of enquiry and discourse which are critical to modern, open,
democratic societies.
A doubling of R&D spending is necessary and
much of the increase should come from the private sector and universities.
To recapture the spirit of innovation that can
propel it to a global science and
technology leader_from net consumer to net producer of knowledge__India should invest in
educating its youth in science and mathematics, reform the way R&D is conducted, engage
the private sector and the Indian diaspora, and take a more mission-driven approach in areas
such as dark matter, genomics, energy storage, agriculture, and mathematics and cyber physical
systems
technology leader_from net consumer to net producer of knowledge__India should invest in
educating its youth in science and mathematics, reform the way R&D is conducted, engage
the private sector and the Indian diaspora, and take a more mission-driven approach in areas
such as dark matter, genomics, energy storage, agriculture, and mathematics and cyber physical
systems
Status of S&T in India:
· Investments
in Indian science, measured in terms of Gross Expenditure on R&D (GERD),
have shown a consistently increasing trend over the years. GERD has tripled in
the last decade in nominal terms and double in real terms. However, as a
fraction of GDP, public expenditures on research have been stagnant – between
0.6-0.7 percent of GDP – over the past two decades.
· India’s
spending on R&D (about 0.6 percent of GDP) is well below that in major
nations such as the US (2.8), China (2.1), Israel (4.3) and Korea (4.2).
· Government
expenditure on R&D is undertaken almost entirely by the central government.
There is a need for greater State Government spending, especially application
oriented R&D aimed at problems specific to their economies and populations.
· Private
investments in research have severely lagged public investments in India.
· In
India universities play a relatively small role in the research activities of
the country.
· East
Asian countries like China, Japan, and Korea, have seen dramatic increases in
R&D as a percentage of GDP as they have become richer.
· Indian
Ph.D. students obtain their degrees either within India or abroad, especially
in the US.
· According
to the WIPO, India is the 7th largest Patent Filing Office in the World.
However, India produces fewer patents per capita. Unless there is a greater
focus on R&D, rising income alone will not allow India to catch up in the
near future.
· Indian
science and research institutes need to inculcate less hierarchical governance
systems, that are less beholden to science administrators and encourage
risk-taking and curiosity in the pursuit of excellence. Hence it is imperative
that there be greater representation of younger scientists in decision making
bodies in their areas of expertise.
Here the Schemes like UcchatarAvishkar Yojana,
INSPIRE, Visiting Advanced Joint Research Faculty Scheme, Ramanujan Fellowship
Scheme, Ramalingaswami Re-entry Fellowship need to be given a look.
Chapter 9. Ease of Doing Business’ Next Frontier:
Timely Justice
The government’s efforts to make business and
commerce easy have been widely acknowledged. Along with that next frontier to
be gained on the ease of doing business is addressing pendency, delays and
backlogs in the appellate and judicial arenas. These are hampering dispute
resolution and contract enforcement, discouraging investment, stalling
projects, hampering tax collections but also stressing tax payers, and
escalating legal costs. This chapter recommends how to handle the issue of
pendency of cases.
India jumped thirty places to break into the top
100 for the first time in
the World Bank’s Ease of Doing Business Report (EODB), 2018. The rankings
reflect the government’s reform measures on a wide range of indicators.
This striking progress notwithstanding, India
continues to lag on the indicator on enforcing contracts, marginally improving
its position from 172 to 164 in the latest report, behind Pakistan, Congo and
Sudan.
Measures taken up by the Government to improve
enforcement regime:
· Passed
The Commercial Courts, Commercial Division And Commercial Appellate Division Of
High Courts Act, 2015
· Expanded
the Lok Adalat Programme to reduce the burden on the judiciary.
· Amended
The Arbitration And Conciliation Act, 2015
· The
judiciary has simultaneously expanded the seminal National Judicial Data Grid
(NJDG) and is close to ensuring that every High Court of the country is
digitized, an endeavor recognized in EODB, 2018.
The average pendency of tax cases is particularly
acute at nearly 6 years per case.
Reasons:
· One
reason for the rising pendency of economic cases at the High Courts could
simply be the generalized overload of cases.
· Some
High Courts of the country retain a unique original jurisdiction, under which
the High Court, and not the relevant lower court, transforms into the Court of
first instance for some civil cases.
· The
Supreme Court, like the High Courts, has less capacity to deal with mounting
economic cases because of rising overall pendency.
· Rising
pendency also results from the injunction of cases by Courts.
Steps needed to improve the situation:
· Expanding
judicial capacity in the lower courts and reducing the existing burden on the
High Courts and Supreme Court
· Substantially
increasing state expenditure on the judiciary, particularly on their
modernization. The Government may consider incentivizing expenditure on court
modernization and digitization.
· Building
on the success of the Supreme Court in disposing tax cases, creating more
subject-matter and stage-specific benches that allow the Court to build
internal specializations and efficiencies in combating pendency and delay.
· Improving
the Courts Case Management and Court Automation Systems.
Clear lines of demarcation and separation of powers
between the two to preserve independence and legitimacy. Even while respecting
these lines, it should be possible and desirable for these branches to come
together to ensure speedier justice to help overall economic activity.
