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05 July Current Affairs

Economic Survey sets out blueprint for $5 tn economy

In News:

The Economic Survey 2019 presented by Chief Economic Adviser (CEA) Krishnamurthy Subramanian focusses on moving to a “virtuous cycle” of savings, investments and exports to transform India into a $5 trillion economy in the next five years.

Details:

According to the survey, India’s GDP is forecast to expand by 7% in fiscal 2019-20, slightly higher than the 6.8% in 2018-19.

‘Blue sky thinking’:

In his preface to the survey, the CEA said the team had been guided by a ‘blue sky’ thought process, an unfettered approach to thinking about the appropriate economic model for India.

“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,” the survey’s authors wrote. “In contrast, when the economy is in a vicious cycle, moderation in these variables dampen each other and thereby dampen the animal spirits in the economy.”

In his first Survey, Dr. Subramanian highlighted the fact that private investment was a key driver for demand, capacity, labour productivity, new technology adoption, and for job creation.

‘No crowding out’:

“What we have tried to talk about is that investment is really critical; related to that is that investment by the private sector cannot happen unless there is no crowding out because of the government,” the CEA said at a press conference.

Further, he said, implicit in the emphasis on private investment was the fact that the government had and would stick to its fiscal consolidation glide path. It has committed to a fiscal deficit of 3.4% of GDP in 2019-20, and 3% each in the subsequent two years.

Fiscal glide path:

“Implicit in the emphasis on private investment, what we are also talking about is sticking to the glide path, which over the last five years we have done a very good job of,” Dr. Subramanian said. “And therefore we anticipate that is the path we would continue on. We will be sticking to the fiscal path.”

Moving the economy into a virtuous cycle would require the adoption of certain practices and norms on data, legal reforms and policy certainty, and some micro-economic aspects such as boosting MSMEs and reducing the cost of capital, he said.

Notably, the Survey made the point that data must be viewed as a public good and used in a concerted way to deliver services. It said that as data of societal interest is generated by the people, it can be created as a public good within the legal framework of data privacy.

The government must intervene in creating data as a public good, especially of the poor and in social sectors. Interestingly, the Survey talked about merging the distinct datasets held by the government into a single dataset, which would generate “multiple benefits”.

Another key area of focus for the Survey was the MSME sector and how to make it grow so as to boost profit creation, job creation, and enhance productivity.

It noted that ‘dwarf’ firms (with less than 100 workers), accounted for more than 50% of all organised firms in manufacturing by number. Despite this, their contribution to employment was just 14% and to productivity a mere 8%.

Large firms, on the other hand, are just 15% in number but account for 75% employment and close to 90% of productivity. Therefore, there is a need to “unshackle” MSMEs and enable them to grow into larger firms.

Regarding employment, the Survey pointed out that the general apprehension was that a high investment rate would mean labour would be substituted out by capital. This, the authors said, was an incorrect assessment as shown by the Chinese model.

“The Chinese experience illustrates how a country with the highest investment rates also created the most jobs,” the Survey’s authors wrote. “What matters most is whether or not investment enhances productivity and thereby international competitiveness. The misconception arises from a view buried in the silo of a specific activity.”

When the full value chain is examined, Dr. Subramanian explained in the press conference, then it becomes clear that capital investment fosters job creation since capital goods production, research and development, and supply chains also generate jobs.

The Survey also pointed to the need for labour reform, highlighting the fact that factories in States that have flexible labour markets are much more productive than those in States with rigid laws.

“Studies have found that on average, plants in labour-intensive industries and in States that have transited towards more flexible labour markets, such as Uttar Pradesh or Gujarat, are 25.4% more productive than their counterparts in States like West Bengal or Chhattisgarh that continue to have labour rigidities,” the CEA said.

The Survey also featured separate chapters on how to leverage behavioural economics to change the behaviour of people, judicial reform, India’s demography, an analysis of the Swachh Bharat Abhiyan, renewable energy, and a possible minimum wage system in India.

Govt. can sell PSU land, reduce majority stake to boost non-tax revenue: CEA

In News:

The government can sell land held by PSUs and potentially reduce its majority stake in some companies to make up for the significant shortfall in tax revenues.

Details:

According to the figures in the Economic Survey 2019, the government is expected to receive as much as Rs. 1.6 lakh crore less than what was estimated in the interim Budget presented by then Finance Minister Piyush Goyal in February. Mr. Goyal’s interim Budget pegged the government’s receipts in 2018-19 at Rs. 17.2 lakh crore, while the Economic Survey’s provisional actual figures show this will be only Rs. 15.6 lakh crore.

The main reason for this sharp downward revision is a commensurate reduction in the tax revenue the government expects to earn in 2018-19. This has been slashed to Rs. 13.16 lakh crore, from the Rs. 14.84 lakh crore estimated in the interim Budget.

Many avenues:

There are several avenues for the government to increase its non-tax revenue, the CEA said, including selling land held by PSUs and increasing disinvestment. “The non-tax revenues have a significant potential to expand, especially because our PSUs, many of them, are sitting on large pools of land which can be monetised,” Dr. Subramanian told The Hindu . “There is also an opportunity for greater returns from divestment.” Regarding disinvestment, Dr. Subramanian made the somewhat radical suggestion that the government could reduce its holdings in some PSUs to below the majority stake of 51% of direct control.

“This is something that can be thought about as well, that the 51% majority stake of the government… instead of looking at it as 51% only of the government, you can look at a situation where it is 40% of the government and 11% of LIC, that is also 51% effectively,” he said. “And that change can enable you to raise a lot more money from divestment as well. The divestment targets are expected to fill in some of the gaps that the tax revenue is creating.”

The subdued tax receipts were mainly due to slower economic growth, he said.

“Tax revenues themselves depend on growth,” he said. “Last year, we clocked 6.8% and the buoyancy in the indirect taxes has not been that great because of a lot of tax concessions that were given over the last year. Once that is streamlined, the tax buoyancy for indirect tax should improve.”

Biodiversity park for Sirumalai

In News:

Forest Minister Dindigul C. Sreenivasan has announced a biodiversity park for Sirumalai.

Details:

The project will come up at an estimated cost of Rs. 5 crore and will be completed in three years. The first phase of the project will commence in 2019-2020 at a cost of Rs. 2.43 crore.

Sirumalai near Dindigul has a mix of dry-deciduous forest in the mid hill ranges and evergreen forests in high ranges. With increasing population and farming of a variety of hill crops, fruits and vegetables, the need to protect the native flora of Sirumalai has increased. A recent survey concluded that Sirumalai is home to 536 species of trees and 895 kinds of herbs. The biodiversity park apart from improving tourism prospects of Sirumalai will be a boon to rare varieties of trees, plants and shrubs endemic to the region.

“The Horticulture Department has a 600 acre research centre atop Sirumalai. Now, the biodiversity park is a welcome move. However, the government should make sure that road and water facilities are improved to cater to tourists who may visit the park during seasons”.

Survey invokes scriptures against loan defaults

In News:

The Economic Survey 2019 delves into religion and mythology to provide a theological basis against loan defaults and for the uplift of women.

Details:

“In India, where social and religious norms play such a dominant role in influencing behaviour, behavioural economics can provide a valuable instrument for change,” the Survey said.

On the Hindu “doctrine of pious obligation”, it said the scriptures ordain that if a person’s debts are not paid and he dies in a state of indebtedness, his soul may have to face “evil consequences”. Therefore, it is the duty of the indebted person’s children to “save him from such evil consequences”.

The Survey quoted Prophet Muhammed as having said: “O Allah, I seek refuge with You from sin and heavy debt.”

“A person cannot enter Paradise until his debt is paid off,” it explained. “All of his wealth could be used to pay the debt and if it is insufficient, then one or more heirs of the deceased could voluntarily pay for him.”

Seeking further theological grounding to curb loan defaults, the Survey then quoted Psalm 37:21 from the Christian scripture: “The wicked borrows and does not repay, but the righteous shows mercy and gives.” “Thus, the repayment of debt in one’s own life is prescribed as necessary by scriptures across religions,” it said.

Status of women:

However, the Chief Economic Adviser’s use of Hindu scriptures didn’t just stop at an attempt to reduce wilful default, co-opting India’s religious texts to focus on the status of women.

“Indian women have enjoyed a position of respect and reverence in ancient Indian society,” the Economic Survey said.

“Ardhanarishwar — a half male-half female representation of Lord Shiva — captures the equality between men and women.”

The Rig Veda saw many women sages as “treasures of knowledge and foresight” such as prophetess Gargi, who questioned the origin of all existence in her Vedic hymns, and Maitreyi, who rejected half her husband’s wealth in favour of spiritual knowledge.

“The long philosophical conversations between sage Agastya and his highly educated wife Lopamudra are legendary,” the Survey added.

‘Greying India must delay retirement’

In News:

India may have to raise the retirement age as the country sees a rapid increase in the size of the elderly population over the next two decades due to the slowing down of the population growth rate, according to the Economic Survey 2018-19.

Details:

It is forecast that the population rate will grow less than 1% from 2021 to 2031 and under 0.5% from 2031 to 2041. This is primarily due to the fall in the total fertility rate (TFR), which is projected to decline between 2021-2041 and fall below replacement level fertility at 1.8 as early as 2021.

The total fertility rate of 2.1 is called the replacement level fertility below which populations begin to decline. For India, the effective replacement level fertility is slightly higher than the normal benchmark due to the skewed gender ratio and is at 2.15-2.2. The current TFR in 14 out of the 22 major States is already below the effective replacement level fertility.

At the State level, southern States as well as West Bengal, Punjab, Maharashtra and Himachal Pradesh have below replacement level fertility and will see TFR decline to 1.5-1.6 by 2021. And by 2031, all States are likely to see below replacement level fertility.

The size of the elderly population, 60 years and above, is expected to nearly double from 8.6% in 2011 to 16% by 2041, whereas the population size of those between 0-19 years, which is on the decline, is likely to drop from as high as 41% in 2011 to 25% by 2041.

This will throw new policy challenges such as provision for health and old-age care, access to retirement-related financial services, public pension funding, and retirement age, states the survey.

“Increasing the retirement age for both men and women going forward could be considered in line with the experience of other countries. This will be key to the viability of pension systems and would also help increase female labour force participation in the older age-groups,” it suggests.

Many countries such as the U.S., Germany and France have already raised the retirement age to reduce the burden on pension funding. The working-age population is expected to see a large increase leading to India’s demographic dividend peaking around 2041, when the share of those in the age group of 20-59 is expected to hit 59%. The survey highlights that this will mean additional jobs will have to be created to keep pace with annual increase in working-age population of 9.7 million during 2021-31 and 4.2 million during 2031-41.

Warning issued against insulin pumps

In News:

A week after the U.S. Food and Drug Administration (FDA) warned about cybersecurity risks attached to some models of insulin pumps manufactured by American medical equipment supplier Medtronic, India’s apex drug regulator, the Central Drug Standard Control Organisation (CDSCO) has also issued an alert.

Details:

CDSCO noted that some models were vulnerable to hackers and an unauthorised person with technical skills and equipment could potentially connect wirelessly to a nearby insulin pump to change the settings and control insulin delivery.

CDSCO has advised that patients and caregivers should check and see if the model and software version of their insulin pump is affected, keep the insulin pump within their control and not share their pump serial number and be attentive to pump notifications, alarms and alerts.

‘Aadhaar aided MGNREGS beneficiaries’

In News:

Refuting criticism of Aadhaar-linked payments and the direct benefit transfer system, the Economic Survey 2018-19 has used the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) as a case study to show the benefits of the use of technology in improving targeting and efficiency in welfare schemes, especially for the most vulnerable groups.

Details:

the Survey recommends that digital technology and the JAM troika — Jan Dhan, Aadhaar and Mobile — be expanded to other welfare schemes. The Survey cites data on the timeliness of wage payments, worker turnout, demand and supply of work under the scheme before and after Aadhaar-linked payments (ALP) were implemented as a proof for its benefits.

Data show that in 2014-15, less than 27% of wage payments were generated within 15 days. Direct benefit transfers were introduced two years later. By 2018-19, more than 90% of wage payments were generated within 15 days. “Payment delays drive away farmers in genuine distress, while others not in distress take the benefits. A person undergoing economic distress needs immediate and certain liquidity. Working for uncertain promised wages, which are likely to be realised with a substantial lag, presents an unattractive proposition for a person in distress as delayed payments effectively imply zero wages in adverse times,” says the Survey. The Survey also compared the MGNREGS performance in blocks affected by drought versus other blocks, using drought as a proxy for distress. In drought-affected blocks, the number of persons demanding work increased more than 20% after the implementation of ALP, while there was no effect in other blocks. A similar trend is seen in the supply of work. Muster rolls, which are work site attendance registers, show a 19% increase after ALP implementation in most blocks. In drought-affected blocks, muster rolls increased by 44%.

“It appears that before the implementation of ALP, the rural poor treated MGNREGS as an option to earn additional income during good times rather than a shock absorber during bad times. This actually defeated the purpose of the programme. Post implementation of ALP, there is a reversal of trend, wherein an increase in demand for work under MGNREGS is observed in drought-affected areas,” says the Survey, arguing that effective targeting has been possible because of ALP.

The Survey suggests that going forward, “demand for work under MGNREGS may be used to develop a real-time indicator of distress at the granular district or panchayat level.” The Survey also recommends that other welfare schemes implement the lessons learnt from Aadhaar linkages in MGNREGS.

Scholarships, pensions, and subsidies for food, kerosene, and gas cylinders should be next in line to implement Aadhaar-based payments.

India could host ‘Detroit’ of EVs

In News:

With the right policies, it’s possible that one of India’s cities could become the ‘Detroit of electric vehicles,’ the Economic Survey said in a chapter on enabling inclusive growth through affordable, reliable and sustainable energy.

Details:

India has a “National Electric Mobility Mission Plan 2020 (NEMMP)” in place to “achieve sales” of 60-70 lakh units of electric vehicles (that includes buses, two-wheelers and cars) by 2020.

In 2015, the Faster Adoption and Manufacturing of Electric vehicles (FAME) scheme was launched to fast-track the goals of NEMMP with an outlay of Rs. 795 crore.

FAME India Phase II, with an emphasis on electrification of public transport, was also launched from April 1, 2019, with a total outlay of Rs. 10,000 crore over the next three years. Several states, had drafted EV policies.

Globally, the sales of electric cars have grown from just over 2,000 units sold in 2008 to over 10 lakh in 2017.

More than half of the sales were in China. The market share of electric cars is around 2% in China while it is around 39% in Norway. Electrification of two-wheelers and buses has also picked up. Global sales of electric buses were about one lakh and sales of two-wheelers were estimated at three crore, according to the chapter note.

In India, electric two wheelers have been the major part of EV sales with sales of around 54,800 in 2018. Compared to this, sales of electric cars have been only around 2,000 in 2017, Indian market share in electric cars is only 0.06%. According to the Society of Manufacturers of Electric Vehicles (SMEV), Uttar Pradesh topped the list of the States with highest EV sales of 6,878 units in 2017-18, followed by Haryana at 6,307 units and Gujarat at 6,010 units. Maharashtra reported a sales of 4,865 EVs while West Bengal came in fifth with sales of 4,706 units.

India’s adoption of electric vehicles, the report said, was part of its larger thrust towards increasing the share of renewable energy and reducing carbon dioxide emissions. The share of renewables (excluding hydro above 25 MW) in total power generation was around 10% in 2018-19 compared with around 6% in 2014-15. India stands fourth in wind power, fifth in solar power and fifth in renewable power installed capacity.

Economic Survey moots central welfare database of citizens

In News:

The Economic Survey 2018-19, tabled in Parliament on Thursday, pitched for setting up a central welfare database of citizens — by merging different data maintained by separate Ministries and departments — which can be tapped for enhancing ease of living for citizens, particularly the poor.

Details:

While the Survey pointed out that governments can create data as a public good within the legal framework of data privacy, it added that care must also be taken not to impose the “elite’s preference of privacy on the poor, who care for a better quality of living the most.”

Stringent safeguards:

It also recommended granting access to select database to private sector for a fee, given that “stringent technological mechanisms exist to safeguard data privacy.”

The Survey noted that there had been some discussions around the “linking” of datasets, primarily through the seeding of an Aadhaar number across databases such as PAN database, bank accounts and mobile numbers. However, it clarified that the linking is “one-way.” For example, banks can use the tokenised Aadhaar number to combine duplicate records and weed out benami accounts, but this does not mean that the UIDAI or government can read the bank account information or other data related to the individual. “While private sector does a good job of harnessing data where it is profitable, government intervention is needed in social sectors of the country where private investment in data remains inadequate,” the Survey said.

These recommendations come at a time when India is working on finalising its personal data protection policy.

“The principle is that most data are generated by the people, of the people and should be used for the people,” it said.

The Survey highlighted that the governments already held a rich repository of administrative, survey, institutional and transactions data about citizens, but these data were scattered across numerous government bodies. Merging these distinct datasets would generate multiple benefits with the applications being limitless.

The government could utilise the information embedded in these distinct datasets to enhance ease of living for citizens, enable truly evidence-based policy, improve targeting in welfare schemes, uncover unmet needs, integrate fragmented markets, bring greater accountability in public services and generate greater citizen participation in governance, etc.

The datasets talked about inclusion of administrative data such as birth and death records, pensions, tax records, marriage records; survey data such as census data, national sample survey data; transactions data such as e-national agriculture market data, UPI data, institutional data and public hospital data on patients.

On granting access to the public sector, the Survey said, “Consistent with the notion of data as a public good, there is no reason to preclude commercial use of this data for profit… Although the social benefits would far exceed the cost to the government, at least a part of the generated data should be monetised to ease the pressure on government finances.”

Survey calls for tax cuts, space for hotels in infra boost to tourism

In News:

The Economic Survey 2018-19 has recommended a series of measures to boost the tourism sector, which saw a “sharp slowdown” last year.

Details:

The recommendations include increased budgetary allocation for development of infrastructure, making land available for hotels, and reduction in taxes.

The Survey, which was tabled in Parliament on Thursday, added that there was a need to strengthen the coordination mechanism of various Ministries and stakeholders to resolve issues in promotion of tourism in the country.

Additionally, the State governments need to be sensitised about tourism being a major driver of employment and poverty alleviation, it said.

Pointing out that the sector experienced a sharp slowdown in 2018, the Survey stated that the foreign tourist arrivals (FTAs) in 2018-19 stood at 10.6 million compared with 10.4 million in 2017-18.

“In terms of growth, the growth rate of FTAs declined from 14.2% in 2017-18 to 2.1% in 2018-19.”

Likewise, foreign exchange earnings (FEEs) from tourism stood at $27.7 billion in 2018-19 as compared to $28.7 billion in 2017-18. “In terms of growth, the FEEs declined from 20.6% in 2017-18 to -3.3% in 2018-19.”

“Land should be made available for hotels and reserve land for hotels in all new townships under planning… Fast-track clearances for hotel projects… Increase skill development efforts to train more persons… Make the taxation regime on hospitality industry globally competitive,” the Survey said.

The Survey also showed that FDI in hotel and tourism also declined from $1,132 million in 2017-18 to $1,076 million in 2018-19.

 

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