Highlights of

Economic
Survey 2019-20
Finance Minister tabled the Economic Survey of India 2019 - 2020 in the Parliament which gives a
review of the developments in the economy over the previous 12 months and also gives an outlook
for the next financial year.

Introduction
Wealth is both a cause and effect of investment. That is why it is important to focus on wealth
creation. With India having become the fifth largest economy in the world in 2019 and aspiring to be
the third largest by 2025, Economic Survey 2019-20 attempts to craft a framework of policies that
can foster wealth creation in India.
The cover of Economic Survey is printed in different colours every year. The colour represents the
government's focus areas for that year's economic planning. This year’s Lavender colour cover, also
used in the new ₹100 note, signifies the synthesis between the old and new wealth creation ideas.

Volume- I
Wealth Creation: The Invisible Hand Supported By
The Hand Of Trust
Exponential rise in India’s GDP and GDP per capita post-liberalization coincides with wealth generation.
Liberalized sectors grew significantly faster than the closed ones.
India’s aspiration to become a $5 trillion economy depends critically on:
Strengthening the invisible hand of the market by promoting pro-business policies.
provide equal opportunities for new entrants, enable fair competition and
ease of doing business
eliminate policies that unnecessarily undermine markets through government
intervention
enable trade for job creation
efficiently scale up the banking sector to be proportionate to the size of
the Indian economy
Supporting it with the hand of trust.
It appeals to ethical and philosophical dimensions. Survey introduces idea of trust as a
public good, which gets enhanced with greater use. Survey suggests that Policies must
empower transparency and effective enforcement using data and technology.
Entrepreneurship And Wealth Creation At The
Grassroots
This chapter examines the content and drivers of entrepreneurial activity at the bottom of the
administrative pyramid – over 500 districts in India.
As per World Bank, India ranks third in number of new firms created. New firm creation in services
is significantly higher than that in manufacturing, infrastructure or agriculture.
Grassroots entrepreneurship is not just driven by necessity as a 10% increase in registration of new
firms in a district yields a 1.8 % increase in Gross Domestic District Product (GDDP).
Thus, entrepreneurship at the bottom of the administrative pyramid – a district – has a
significant impact on wealth creation at the grassroot level.
Literacy and education foster local entrepreneurship significantly. New firm formation is the lowest
in eastern India with lowest literacy rate (59.6 %).
Physical infrastructure quality, Ease of Doing Business, flexible labour regulation also impact new
firm creation.
Policy Suggestions by the Survey
Measures to increase the literacy levels rapidly through the institution of more schools
and colleges will spur entrepreneurship and consequently local wealth creation.
Better connectivity of villages through tar roads will likely improve access to local markets and
improve entrepreneurial activity.
Policies that foster ease of doing business and flexible labour regulation foster entrepreneurial
activity, especially in the manufacturing sector.

Pro-Business versus Pro-Crony

To achieve a $5 trillion economy focus on:
Promoting ‘pro-business’ policy that unleashes
power of competitive markets to generate
wealth.
Weaning away from ‘pro-crony’ policy that may
favour specific private interests, especially
powerful incumbents.
Pro-crony policies such as discretionary allocation of natural resources till 2011 led to rent-seeking
by beneficiaries while competitive allocation of the same post 2014 ended such rent extraction.
Similarly, crony lending that led to wilful default, wherein promoters collectively siphoned off
wealth from banks, led to losses that dwarf subsidies for rural development.

Undermining Markets: When Government

Intervention Hurts More Than It Helps
Government intervention, though well intended, often ends up undermining the ability of markets
to support wealth creation and leads to outcomes opposite to those intended.
Examples of anachronistic government interventions include Essential Commodities Act (ECA),
1955, Drug Price Control under ECA, Government intervention in Grain markets and Debt waivers.
Frequent and unpredictable imposition of blanket stock limits on commodities under ECA
distorts:
The incentives for the creation of storage infrastructure by the private sector.
Movement up the agricultural value chain.
Development of national market for agricultural commodities.
 Full debt waiver beneficiaries consume less, save less, invest less and are less productive after
the waiver when compared to partial beneficiaries. Share of formal credit decreases for full
beneficiaries when compared to partial beneficiaries, thereby defeating the very purpose of the
debt waiver provided to farmers.
The government must systematically examine areas of needless intervention and undermining of
markets; but the Survey does not argue that there should be no Government intervention.

Creating Jobs and Growth by Specializing to

Exports in Network Products
The chapter lays out the policy map to achieve sustained and faster export growth and thereby
well-paid jobs by examining the key questions of
what type of policy interventions would help achieve faster export growth?
should policies target export growth through specialization (intensive margin) or diversification
(extensive margin)?
Is it in our interest to promote strong local linkages for domestic industries or to participate in
Global Value Chains (GVCs)?
which are the industries that hold the greatest potential for export growth and employment
generation?
By integrating “Assemble in India for the world” into Make in India, India can
raise its export market share to about 3.5 % by 2025 and 6 % by 2030
create 4 crore well-paid jobs by 2025 and 8 crore by 2030.
Survey suggests a strategy similar to one used by China to grab this opportunity:
Specialization at large scale in labour-intensive sectors, especially network products, where
production occurs across Global Value Chains operated by multi-national corporations.
There exists a significant unexploited export potential in India’s traditional unskilled
labour-intensive industries such as textiles, clothing, footwear and toys.
Export primarily to markets in rich countries.
Survey analyses impact of India’s trade agreements on overall trade balance between 1993 and
2018. India gained 0.7 % increase in trade surplus per year for manufactured products and 2.3 %
per year for total merchandise.

Targeting Ease of Doing Business in India

The chapter illustrates the importance of clearly mapping the overall business landscape as well
as specific process flow. This allows identification of bottlenecks and their relative importance.
Ease of doing business is key to entrepreneurship, innovation and wealth creation. Despite jump
of 79 positions to 63 in 2019 from 142 in 2014 in World Bank’s Doing Business rankings, India still
trails in parameters such as Ease of Starting Business, Registering Property, Paying Taxes and
Enforcing Contracts.
E.g., for merchandise exports, logistics process flow for imports is more efficient than that for
exports.
Setting up and operating a service or manufacturing business in India faces a maze of laws, rules
and regulations. Many of these are local requirements, such as burdensome documentation for
police clearance to open a restaurant. This must be cleaned up and rationalized one segment at a
time.
Suggestions-
Need for close coordination between the Logistics division of the Ministry of Commerce and
Industry, the Central Board of Indirect Taxes and Customs, Ministry of Shipping and the different
port authorities to streamline the logistics process at sea-ports.
Individual sectors such as tourism or manufacturing require a more targeted approach that maps
out the regulatory and process bottlenecks for each segment.
Golden jubilee of Bank Nationalisation: Taking
stock
Since 1969, the year of Banks Nationalisation, India’s Banking sector has not developed
proportionately to economic growth. India has only one bank in global top 100.
Onus of supporting economy falls on Public Sector Banks (PSBs) accounting for 70 % of market
share in Indian banking. Yet, on every performance parameter, PSBs are inefficient-
In 2019, investment for every rupee in PSBs, on average, led to loss of 23 paise, while in “New
Private Banks” (NPBs) - banks licensed after 1991 liberalization - it led to gain of 9.6 paise.
Credit growth in PSBs has been much lower than NPBs for last several years.
Solutions to make PSBs more efficient-
representation on boards proportionate to the blocks held by employees to incentivize employees
and align their interests with that of all shareholders of banks,
creation of a GSTN type entity that will aggregate data from all PSBs
use technologies like big data, artificial intelligence and machine learning in credit decisions.

Financial Fragility in the NBFC Sector

This Chapter investigates the key drivers of Rollover Risk (risk associated with the refinancing of
debt) of the shadow banking system in India in light of the current liquidity crunch in the sector.
These drivers are
Asset Liability Management (ALM) Risk.
Interconnectedness Risk.
Financial and Operating Resilience of an NBFC.
Over-dependence on short-term wholesale funding
Problems faced by Non-Banking Financial Companies (NBFCs) stemmed from their
over-dependence on short-term wholesale funding from the Liquid Debt Mutual Funds. While
such reliance works well in good times, it generates significant risk to NBFCs from inability to
roll over the short-term funding during times of stress.
Survey computes a diagnostic (Health Score) by quantifying the Rollover risk for a sample of
Housing Finance Companies (HFCs) and Retail-NBFCs. Survey suggests that the Health Score
provides an early warning signal of impending liquidity problems.
The Survey prescribes this analysis to efficiently allocate liquidity enhancements across
firms (with different Health Scores) in the NBFC sector, thereby arresting financial fragility in
a capital-efficient manner.

Privatization and Wealth Creation

The chapter examines the realized efficiency gains from privatization in Indian context and
supports aggressive disinvestment of CPSEs.
Survey presents an analysis of the before-after performance of 11 CPSEs which underwent
strategic disinvestment from 1999-2000 to 2003-04:
Privatized CPSEs have been able to generate more wealth from the same resources.
Survey suggests aggressive disinvestment of CPSEs to: Bring in higher profitability, Promote
efficiency, Increase competitiveness, and Promote professionalism.

Is India’s GDP Growth Rate Overstated? No!

This chapter considers the important issue of the accuracy of India’s GDP estimation.
Recent debate about accuracy of India’s GDP estimation following the revised estimation
methodology in 2011 is extremely significant. Correctly specified models that account for all
unobserved differences and differential trends in GDP growth across countries fail to find any
misestimating of growth in India or other countries. Concerns of a misestimated Indian GDP are
unsubstantiated by the data and are thus unfounded.
 Thalinomics: The Economics of a Plate of Food
in India
It was an attempt to quantify what a common person pays for a Thali across India.

2015-16 can be considered as a year when there was a shift in the dynamics of Thali prices.
Many reform measures were introduced since 2014-15 to enhance the productivity of the
agricultural sector as well as efficiency and effectiveness of agricultural markets for
better and more transparent price discovery.
From 2006-07 to 2019-20:
Affordability of vegetarian Thalis improved 29 %.
Affordability of non-vegetarian Thalis improved by 18 %.

Volume- II
The Indian economy, since 2011-12, has been under the influence of slowing cycle of growth:
investment-growth-consumption. The current deceleration in GDP growth can be understood in
context of cycle of growth.
On the supply side, the deceleration in GDP growth has been contributed generally by all sectors
except ‘Agriculture and allied activities’ and ‘Public administration, defence, and other services’.
On the demand side, the deceleration in GDP growth was caused by a decline in the growth of
real fixed investment in H1 of 2019-20 when compared to 2018-19 induced in part by a sluggish
growth of real consumption.
Stagnation in private corporate investment at approximately 11.5% of GDP between 2011-12 to
2017- 18.
Fixed investment rate has started declining sharply since 2011- 12 and subsequently
plateaued from 2016- 17 onwards.
Delayed decline in private consumption from 2017-18 reflects partly the effect of decline in
GDP growth on consumption.
Weak environment for global manufacturing, trade and demand.

State of the India's GDP growth moderated to 4.8 per cent in 1st half of 2019-20.
Economy Survey projects India's economic growth at 6% to 6.5% in next financial
year starting April 1.
Revenue Receipts registered a higher growth during the first eight
months of 2019-20, compared to the same period last year, led by
Fiscal Developments considerable growth in Non-Tax revenue.
Gross GST monthly collections have crossed the mark of Rs. 1 lakh crore
for 5 times during 2019-20 (up to December 2019).
Fiscal deficit of states within the targets set out by the FRBM Act.
India’s BoP position improved to $ 433.7 bn in September’19.
Current account deficit narrowed from 2.1% in 2018-19 to 1.5% of GDP
External Sector
in H1 of 2019-20.
Foreign reserves stood at $ 461.2 bn as on 10 January, 2020.
 India’s merchandise trade balance improved from 2009-14 to 2014-19,
although most of the improvement in the latter period was due to more
than 50% decline in crude prices in 2016-17.
India’s top five trading partners: USA, China, UAE, Saudi Arabia and
Hong Kong.
Merchandise exports to GDP ratio declined, entailing a negative impact
on BoP position.
Merchandise imports to GDP ratio declined for India, entailing a net
positive impact on BoP.
Net FDI inflows in 2019-20 (first 8 months) was $ 24.4 bn while Net FPI
in this period was $ 12.6 bn.
Net remittances from Indians employed overseas continued to increase,
receiving $ 38.4 billion in H1 of 2019-20.
India’s external liabilities (debt and equity) to GDP increased at the end
of June, 2019.
Monetary policy remained accommodative in 2019-20. Repo rate was
cut by 110 basis points in four consecutive MPC meetings in the
Monetary financial year due to slower growth and lower inflation.
Management and Gross Non- Performing Advances ratio remained unchanged for
Financial Scheduled Commercial banks at 9.3% between March -September 2019
Intermediation but increased slightly for NBFCs from 6.1% in March’19 to 6.3% in
September’19.
Financial flows to economy remained constrained as credit growth
declined for both banks and NBFCs.
Consumer Price Index (CPI) inflation increased from 3.7% in 2018-19
(April to December 2018) to 4.1% in 2019-20 (April to December 2019)
mainly on account of Food and beverages.
Prices and Inflation Wholesale Price Index (WPI) inflation fell from 4.7% in 2018-19 to 1.5%
during 2019-20.
Rural inflation has been more variable across states than urban inflation.

SDG India Index: Himachal Pradesh, Kerala, Tamil Nadu, Chandigarh are
front runners.
Sustainable
India hosted COP-14 to UNCCD which adopted the Delhi Declaration:
Development and
Investing in Land and Unlocking Opportunities.
Climate Change
Forest and tree cover: Increasing and has reached 24.56 % of
geographical area of the country.
COP-25 of UNFCCC at Madrid: India reiterated its commitment to
implement Paris Agreement.
However, burning of agricultural residues, leading to rise in pollutant
levels and deterioration of air quality, is still a major concern.

Agricultural productivity is constrained by lower level of mechanization

which is about 40 % in India, much lower than China (59.5 %) and Brazil
(75 %).
Food Processing Industries sector has been growing and constitutes as
Agriculture much as 8.83 % and 10.66 % of GVA in Manufacturing and Agriculture
and Food sector respectively in 2017-18.
Management Livestock sector has been growing at a CAGR of 7.9 per cent during the
last five years.
While safeguarding interests of vulnerable sections, Survey emphasizes
on sustainability of food security operations by: Addressing the
burgeoning food subsidy bill and Revisiting the rates and coverage
under NFSA.
 Industrial sector as per Index of Industrial Production (IIP) registered a
growth of 0.6% in 2019-20 (April-November) as compared to 5.0 %
Industry and during 2018-19 (April-November).
Infrastructure Report of the Task Force on National Infrastructure Pipeline has
projected total infrastructure investment of Rs. 102 lakh crore during
the period FY 2020 to 2025 in India.

Services account for about 55 % of the total size of the economy and
Services Sector GVA growth; 2/3rd of total FDI inflows into India; about 38% of total
exports; and more than 50 % of GVA in 15 out of 33 states and UTs.
FDI into services sector has witnessed a recovery in early 2019-20.

Expenditure on social services (health, education and others) by Centre

and States as a proportion of GDP increased from 6.2 % in 2014-15 to 7.7
% in 2019-20 (BE).
India’s ranking in Human Development Index improved to 129 in 2018
from 130 in 2017.
Share of regular wage/salaried employees has increased from 18 % in
Social 2011-12 to 23 % in 2017-18.
Infrastructure, Total formal employment in the economy increased from 8 % in 2011-12
Employment and to 9.98 % in 2017-18.
Human Gender disparity in India’s labour market widened due to decline in
Development female labour force participation, especially in rural areas.
Ayushman Bharat and Mission Indradhanush has led to improved access
to health services.
About 76.7 % of the households in the rural and about 96 % in the
urban areas had pucca houses.
A 10 Year Rural Sanitation Strategy (2019-2029) launched to focus on
sustaining the sanitation behavior change and increasing access to solid
and liquid waste management.

Note – Detailed Summary will be provided in the second week of February