Economic Survey Vol.2

Economy - Economic Survey Vol.2

Chapter-1 State of the Economy

• The year 2019 was a difficult year for the global economy with world output growth estimated to grow at its slowest pace of 2.9 per cent since the global financial crisis of 2009, declining from a subdued 3.6 per cent in 2018 and 3.8 per cent in 2017. Uncertainties, although declining, are still elevated due to protectionist tendencies of China and USA and rising USA-Iran geo-political tensions.
• Amidst a weak environment for global manufacturing, trade and demand, the Indian economy slowed down with GDP growth moderating to 4.8 per cent in H1 of 2019-20, lower than 6.2 per cent in H2 of 2018-19. A sharp decline in real fixed investment induced by a sluggish growth of real consumption has weighed down GDP growth from H2 of 2018-19 to H1 of 2019-20.
• Real consumption growth, however, has recovered in Q2 of 2019-20, cushioned by a significant growth in government final consumption. At the same time, India’s external sector gained further stability in H1 of 2019-20, with a narrowing of Current Account Deficit (CAD) as percentage of GDP from 2.1 in 2018-19 to 1.5 in H1 of 2019-20, impressive Foreign Direct Investment (FDI), rebounding of portfolio flows and accretion of foreign exchange reserves. Imports have contracted more sharply than exports in H1 of 2019-20, with easing of crude prices, which has mainly driven the narrowing of CAD.
• On the supply side, agricultural growth, though weak, is moderately higher in H1 of 2019-20 than in H2 of 2018-19. Headline inflation rose from 3.3 per cent in H1 of 2019-20 to 7.4 per cent in December 2019 on the back of temporary increase in food inflation, which is expected to decline by year end. Rise in CPI-core and WPI inflation in December 2019 suggests building of demand pressure.
• The deceleration in GDP growth can be understood within the framework of a slowing cycle of growth with the financial sector acting as a drag on the real sector. In an attempt to boost demand, 2019-20 has witnessed significant easing of monetary policy with the repo rate having been cut by RBI by 110 basis points.
• Having duly recognized the financial stresses built up in the economy, the government has taken significant steps this year towards speeding up the insolvency resolution process under Insolvency and Bankruptcy Code (IBC) and easing of credit, particularly for the stressed real estate and Non-Banking Financial Companies (NBFCs) sectors. At the same time, impact of critical measures taken to boost investment, particularly under the National Infrastructure Pipeline, present green shoots for growth in H2 of 2019-20 and 2020-21.
• Based on first Advance Estimates of India’s GDP growth for 2019-20 recorded at 5 per cent, an uptick in GDP growth is expected in H2 of 2019-20. The government must use its strong mandate to deliver expeditiously on reforms, which will enable the economy to strongly rebound in 2020-21.

Chapter-2 Fiscal Developments

• The year 2019-20 has been challenging for the Indian economy owing to the decelerating growth rate experienced in the first half of the year. Amongst the various reforms introduced during the year to promote growth and investment, reduction in corporate income tax rate was a major structural reform.
• The fiscal policy 2019-20 was characterized by sluggish growth in Tax revenue relative to the budget estimates. The Non-Tax revenue registered a considerably higher growth in the first eight months of this financial year compared to the same period last year.
• On the expenditure side, Total Expenditure has increased at a considerable pace during April to November 2019-20 with Capital Expenditure growing at roughly three times the growth registered during the same period last year.
• The fiscal deficit as a per cent of Budget Estimate during the first eight months of this financial year was at a similar level as that in the corresponding period last year.
• During the first eight months of 2019-20, the Revenue Receipts registered a higher growth compared to the same period last year, which was led by considerable growth in Non-Tax revenue.
• During 2019-20 (upto December 2019), the gross GST monthly collections has crossed the mark of Rs. one lakh crore for a total of five times.
• Structural reforms undertaken in taxation during the current financial year include change in corporate tax rate and measures to ease the implementation of GST.
• The States have continued on the path of fiscal consolidation and contained the fiscal deficit within the targets set out by the FRBM Act.
• The General Government (Centre plus States) has been on path of fiscal consolidation.
• Going forward, considering the urgent priority of the Government to revive growth in the economy, the fiscal deficit target may have to be relaxed for the current year.

Chapter- 3 External Sector

• India’s external sector gained further stability in the first half of 2019-20, witnessing improvement in Balance of Payments (BoP) position. India’s foreign reserves are comfortably placed at US$ 461.2 billion as on 10th January, 2020.
• The improvement in BoP was anchored by narrowing of current account deficit (CAD) from 2.1 per cent in 2018-19 to 1.5 per cent of GDP in H1 of 2019-20. The contraction of CAD has emanated from easing of crude prices.
• Export growth remains subdued with external demand weakened by slowdown in global investment, output and heightened trade tensions, notwithstanding resilient service exports. Increase in service imports is inevitable with increasing foreign direct investment (FDI) and ‘Make in India’.
• Petroleum products, precious stones, drug formulations & biologicals, gold and other precious metals continue to be top exported commodities, with fastest growth seen in drug formulations & biologicals in 2019-20 (April to November). Crude petroleum, gold, petroleum products, coal, coke & briquittes constitute top import items, with fastest growth seen in electronics in 2019-20 (April to November).
• India’s top five trading partners continue to be USA, China, UAE, Saudi Arabia and Hong Kong. Further improvement in BoP was contributed by easing of external financial conditions, impressive FDI, rebounding of portfolio flows and receipt of robust remittances. Net FDI inflows have continued to be buoyant in 2019-20 attracting US$ 24.4 billion in the first eight months, higher than the corresponding period of 2018-19. Net FPI in the first eight months of 2019-20 stood at US$ 12.6 billion.
• This reflects a global sentiment that increasingly believes in India’s growth story and reform measures being undertaken by the government. External debt as at end September, 2019 remains low at 20.1 per cent of GDP.
• India’s Net International Investment Position (NIIP) to GDP ratio has also improved compared to 2018-19. After witnessing significant decline since 2014-15, India’s external liabilities (debt and equity) to GDP has increased at the end of June, 2019 primarily driven by increase in FDI, portfolio flows and external commercial borrowings (ECBs).
• In sync with an estimated 2.9 per cent growth in global output in 2019, global trade is estimated to grow at 1.0 per cent after having peaked in 2017 at 5.7 per cent. However, it is projected to recover to 2.9 per cent in 2020 with recovery in global economic activity.
• India’s merchandise trade balance has improved from 2009-14 to 2014-19 although most of the improvement in the latter period was on account of more than fifty per cent decline in crude prices in 2016-17.
• India’s net services surplus has been steadily declining in relation to GDP. It financed two-thirds of merchandise deficit in 2016-17 before declining to less than half in the last couple of years.
• Under trade facilitation, India has improved its ranking from 143 in 2016 to 68 in 2019 under the indicator, “Trading across Borders”, monitored by World Bank in determining the overall ranking of around 190 countries in its Ease of Doing Business Report.
• The logistics industry of India is currently estimated to be around US$ 160 billion and is expected to touch US$ 215 billion by 2020.
• Net remittances from Indians employed overseas has been constantly increasing year after year and has continued doing so with the amount received in H1 of 2019-20 being more than fifty per cent of the previous year level.

Chapter-4 Monetary Management and Financial Intermediation

• Monetary policy remained accommodative in 2019-20. The repo rate was cut by 110 basis points in four consecutive Monetary Policy Committee meetings in the financial year due to slower growth and lower inflation. However, it was kept unchanged in the fifth meeting held in December 2019.
• Liquidity conditions were tight for initial two months of 2019-20; but subsequently it has remained comfortable. The financial flows to the economy however, remained constrained as credit growth declined for both banks and Non-Banking Financial Corporations.
• The growth (YoY) of loans from NBFCs declined from 27.6 per cent in September 2018 and 21.6 per cent in December 2018 to 9.9 per cent at end September 2019.
• The Gross Non Performing Advances ratio of Scheduled Commercial Banks has remained unchanged at 9.3 per cent between March and September 2019 and increased slightly for the Non-Banking Financial Corporations from 6.1 per cent to 6.3 per cent.
• Capital to Risk-weighted Asset ratio of Scheduled Commercial Banks increased from 14.3 per cent to 15.1 per cent between March 2019 and September 2019.
• Systemic liquidity has been largely in surplus in 2019-20. Weighted Average Call Money Rate remeined mostly close to repo rate within the Liquidity Adjustment Facility (LAF) corridor.
• Nifty 50 and S&P BSE Sensex indices, reached record high closing of 12,355 and 41,952 respectively during 2019-20 (upto January 16, 2020). The resolution under IBC has been much higher as compared to previous resolution channels. Amount recovered as percentage of amount involved was 49.6 per cent in 2017-18 and 42.5 per cent in 2018-19. The proceedings under IBC take on average about 340 days, including time spent on litigation, in contrast with the previous regime where processes took about 4.3 years.
• The total money raised by public issue and rights increased to Rs. 73,896 crore in 2019-20 (up to December 31, 2019) from Rs. 44,355 crore in the corresponding period last year. Rs. 6.29 lakh crore was raised through private placements in 2019-20 (up to December 31, 2019) as compared to Rs. 5.3 lakh crore in the corresponding period of previous year.
• As on end December 2019, Rs. 1.58 lakh crore were realizable in cases resolved under Corporate Insolvency Resolution Processes.

Chapter-5 Prices and Inflation

• Inflation has been witnessing moderation since 2014 backed by low food inflation. During the current financial year, however, food and beverages inflation has been trending differently. Food inflation has been on an upward trend mainly backed by rising vegetables, fruits and pulses prices.
• However, the volatility in prices of most of the essential agricultural commodities with some exceptions like pulses has been on a downward trend. Since July 2018, CPI-Urban inflation has been consistently higher than CPI-Rural inflation, which is in contrast to earlier trend where rural inflation was higher than urban inflation.
• Inflation has been declining in most of the States, however, the variability of inflation has been increasing. Since 2012, there has been a change in inflation dynamics. There is evidence for a strong reversion of headline inflation to core inflation.
• Transmission of inflation from non-core components to core components is minimal.
• Headline Consumer Price Index (CPI) inflation was 3.7 per cent in 2018-19 (April to December, 2018), compared to 4.1 per cent in 2019-20 (April to December, 2019).
• During 2019-20, WPI based inflation has been on a continuous fall declining from 3.2 per cent in April 2019, only marginally rising in November and December to end at 2.6 per cent in December 2019.
• Food index which declined on an annual basis between 2017-18 and 2018-19, saw an uptick during the current financial year (April-December, 2019).
• During 2019-20 (April- December), food and beverages emerged as the main contributor to CPI-C inflation, with 54 per cent of the inflation during this period attributable to this group.
• In the four metropolitan cities of the country, retail prices of various essential commodities have diverged from wholesale prices over the years.
• Inflation in fifteen States/Union Territories (UTs) was below 4 percent in FY 2019-20 (April-December). Comparing FY 2018-19 (April- December) with FY 2019-20 (April- December), inflation has actually decreased in eight states.
• Inflation expectations have declined thereby indicating that the inflation targeting framework has started influencing expectations of inflation in the economy.

Chapter-6 Sustainable Development and Climate Change

• The Sustainable Development Goals (SDGs) constitute a befitting framework to answer the developmental challenges to achieve a sustainable future, free from social, economic, and environmental inequalities and thereby ensuring a greener and healthy Planet for future generations.
• India’s achievement in the composite SDG index is commendable as the score has improved from 57 in 2018 to 60 in 2019. Along with following the holistic approach for achieving the SDGs by implementing a comprehensive array of schemes, India’s progress in adopting, implementing, and monitoring SDGs stands noteworthy.
• The SDG indicator linked reporting and monitoring framework helped in exploring the nexus approach to attain development goals of India. As a responsible nation, with the introduction of various schemes, India has been continuously moving towards economic growth, keeping in mind the imperatives of sustainable development. As per the SDG Index, Kerala, Himachal Pradesh, Tamil Nadu, Andhra Pradesh, Telangana, Karnataka, Goa, Sikkim, Chandigarh and Puducherry are the front runners.
• India is among a few countries in the world where forest and tree cover have increased considerably. The forest and tree cover have reached 80.73 million hectare which is 24.56 per cent of the geographical area of the country. Increased focus on sustainability requires various actions towards building individual and institutional capacity, accelerating knowledge and enhancing technology transfer and deployment, enabling financial mechanisms, implementing early warning systems, undertaking risk management and addressing gaps in implementation and upscaling. These fair and justified demands have been discussed in various multilateral negotiations but remain largely unresolved.
• Burning of agricultural residues, leading to rise in pollutant levels and deterioration of air quality, is still a major concern though the total number of burning events recorded reduced due to various efforts taken.
• Global agenda of delivering sustainable development and addressing climate change can be delivered only if all nations act upon their fair share of responsibilities including the fulfillment on means of implementation by the developed world to the developing countries. Therefore, enhanced ambition and enhanced support should be on equal footing.
• India is the second largest Emerging Green Bond Market after China.
• GCF’s first replenishment (2020-2023) witnessed 28 countries pledging resources to replenish the Fund for an amount of US$ 9.7 billion, which is even quantitatively lower than the IRM period.
• At COP 25 of UNFCCC at Madrid, India reiterated its commitment to implement Paris Agreement in accordance with the principles of equity and common but differentiated responsibilities. COP 25 decision provides for balanced and integrated view of ambition that includes efforts for climate change mitigation, adaptation and means of implementation from developed country parties to developing country parties.
• ISA has taken up the role of an ‘enabler’ by institutionalizing 30 Fellowships from the Member countries; of a ‘facilitator’ by getting the lines of credit worth US$ 2 Billion from EXIM Bank of India and US$ 1.5 Billion from AfD, France; of an ‘incubator’ by nurturing initiatives like the Solar Risk Mitigation Initiative and of an ‘accelerator’ by developing tools to aggregate demand for 1000 MW solar and 270,000 solar water pumps.
• India launched the CDRI, focus on developing resilience in ecological, social and economic infrastructure.
• Government of India hosted COP 14 to UNCCD from 2-13 September, 2019. COP 14 adopted the Delhi Declaration: Investing in Land and Unlocking Opportunities.

Chapter-7 Agriculture and Food Management

• Agriculture and its allied sectors still remain an important sector because of its continued role in employment, income and most importantly in national food security. Proportion of Indian population depending directly or indirectly on agriculture for employment opportunities is more than that of any other sectors in India. Its contribution to national income has gradually declined from 18.2 per cent in 2014-15 to 16.5 in 2019-20, reflecting the development process and the structural transformation taking place in the economy.
• The realisation of the objective of doubling farmer’s income requires that the challenges of the sector such as access to credit, insurance coverage, irrigation facilities, etc. are addressed. There is also a need to address the issue of lower farm mechanisation in India which is only about 40 per cent as compared to about 60 per cent in China and around 75 per cent in Brazil.
• Given the fact that the livestock sector has grown at a compound annual growth rate of nearly 8 per cent over the last five years, it assumes an important role in income, employment and nutritional security. Though, the food processing sector is growing at an average annual growth rate of more than 5 per cent over the last six years ending 2017-18, more focussed attention to the sector is required due to its significant role in reducing post-harvest losses and creation of additional market for farm outputs. With the implementation of the National Food Security Act from July 2013, the food subsidy bill has increased from Rs. 113171.2 crore in 2014-15 to Rs. 171127.5 crore in 2018-19.
• India’s food management should focus on rationalisation of food subsidy while addressing the challenges of food security, especially of the most vulnerable sections.
• The regional distribution of agricultural credit in India shows a highly skewed pattern. It is seen that credit is low in North Eastern, Hilly and Eastern States. The share of North Eastern States has been less than one percent in total agricultural credit disbursement.

Chapter-8 Industry and Infrastructure

• The industrial sector based on Index of Industrial Production (IIP) registered a growth of 0.6 per cent for 2019-20 (April-November) as compared to 5.0 per cent during 2018-19 (April-November).
• Growth of manufacturing sector was 0.9 per cent during 2019-20 (April-November) as compared to 4.9 per cent during 2018-19 (April-November).
• Growth of refinery products sector stood at (-)1.1 per cent during 2019-20 (April-November) as compared to 5.3 per cent during 2018-19 (April-November). Steel sector achieved a growth of 5.2 per cent during 2019-20 (April-November) as compared to 3.6 per cent during 2018-19 (April- November).
• Government has initiated several policies in various infrastructure sectors to enhance their capacity and output.
• Report of the Task Force on National Infrastructure Pipeline released on 31.12.2019 has projected total infrastructure investment of ` 102 lakh crore during the period FY 2020 to 2025 in India.
• Fertilizer sector achieved a growth of 4.0 per cent during 2019-20 (April-November) as compared to (-)1.3 per cent during 2018-19 (April-November). Ø India has considerably improved its ranking in Ease of Doing Business to 63rd position in 2019 compared to 77th position in 2018.
• Crude steel production witnessed growth of 1.5 per cent during 2019-20 (April-October).
• The installed capacity of power generation has increased to 3,64,960 MW as on 31 October 2019.
• Report of the Task Force on National Infrastructure Pipeline released on 31.12.2019 has projected total infrastructure investment of ` 102 lakh crore during the period FY 2020 to 2025 in India.

Chapter-9 Services Sector

• The services sector’s significance in the Indian economy has continued to increase, with the sector now accounting for around 55 per cent of total size of the economy and GVA growth, two-thirds of total FDI inflows into India and about 38 per cent of total exports. The share of services sector now exceeds 50 per cent of Gross State Value Added in 15 out of the 33 states and UTs, with this share more than 80 per cent in Delhi and Chandigarh.
• However, data on GVA growth, high-frequency indicators and sectoral trends suggest a moderation in services sector activity during 2019-20. Bank credit to services sector, air passenger traffic and rail freight traffic have witnessed a deceleration, while foreign tourist arrivals and port traffic have continued to ease during 2019-20.
• On the bright side, the very latest readings on most of these indicators suggest a recovery. Moreover, gross FDI equity inflows into services sector have registered a strong recovery and services exports have maintained their momentum during April-September 2019.
• Services exports have outperformed goods exports in the recent years, due to which India’s share in world’s commercial services exports has risen steadily over the past decade to reach 3.5 per cent in 2018, twice the share in world’s merchandise exports at 1.7 per cent.
• India’s education services imports have increased markedly in the recent years, up from about US$ 2.3 billion in 2013-14 to US$ 5.0 billion in 2018-19. The shipping turnaround time at ports has almost halved from 4.67 days in 2010-11 to 2.48 days in 2018-19. India has launched around 5-7 satellites per year in the recent years with no failures, barring one in 2017.

Chapter- 10 Social Infrastructure, Employment and Human Development

• Considering India’s demographic advantage of a large young population in the productive age group, improvements in the social sectors like education, health care, water supply and sanitation leaves a profound impact on the quality of life of the people as well as to the productivity of the economy.
• Interventions made to reach out to all sections of the society includes fundamental changes in design of the policies/schemes, expanding the reach through people’s participation, awareness generation, technology use, and direct benefit transfer.
• Expenditure on social services, as a proportion of GDP, has increased by 1.5 percentage points during the period 2014-15 to 2019-20. Access to education has improved the participation in education system at all levels both in rural and urban areas. Scaling up of the efforts to impart necessary skills through a wide network of ITIs focusing on women has pushed the skill development up. Gross Enrolment Ratio at secondary, higher secondary and higher education level needs to be improved.
• Gender disparity in India’s labour market widened due to decline in female labour force participation especially in rural areas and around 60 per cent of productive age (15-59) group are engaged in full time domestic duties.
• Total formal employment in the economy increased from 8 per cent in 2011-12 to 9.98 per cent in 2017-18. Access to health services, inter-alia, through Ayushman Bharat and Mission Indradhanush across the country has improved. Mission Indradhanush has vaccinated 3.39 crore children and 87.18 lakh pregnant women of 681 districts across the country.
• About 76.7 per cent of the households in the rural and about 96 per cent in the urban areas had houses of pucca structure. Jal Shakti Abhiyan launched to accelerate progress on water conservation activities in water stressed districts of India.