Economic Survey lays out blueprint for $5 trillion economy

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By Moderator July 5, 2019 12:09

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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.

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  • 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.
  • The Survey said India needs to
    • Cut real interest rates,
    • Ease labour rules,
    • Reduce capital gains tax on startup investments
    • Encourage infant firms to grow at a sustained 8% rate to reach the GDP target by 2024-25.
    • Micro, small and medium enterprises must be nourished, especially firms that are most likely to boost both job creation and productivity
    • Presenting data as a ‘public good’,
    • Ensuring policy consistency
    • Reducing the cost of capital

Challenges

  • On the fiscal front, the survey is even less optimistic. It lists several challenges
    • To achieving the fiscal deficit target of 3% of GDP by March 2021:
    • The “apprehensions of slowing of growth” and the implications for revenue collections;
    • The shortfall in GST collections and the imperative that it places on revenue buoyancy this year;
    • The hunt for resources to fund the expanded PM-KISAN scheme, Ayushmaan Bharat and other government initiatives; and
    • The impact on oil purchase prices due to the U.S. sanctions on import of crude from Iran.

Some key highlights

On Investment

  • Drawing lessons from the growth trajectories followed by East Asian economies that experienced long periods of high growth, the Survey postulates the centrality of investment as the “key driver” that catalyses the economy into a self-sustaining virtuous cycle supported by a favourable demographic phase.
    • China remains an investment-driven economy even today with its investment and savings rates reaching about 45% of GDP even in 2017
  • The Survey said as an investment depends crucially on a low cost of capital, reducing real interest rates need not necessarily lower savings when the demographics are favourable.

Optimal tax policy

  • Advocating an “optimal tax policy”, the Survey seeks rationalization of tax policy and its implementation for startups to foster innovation.
    • Design of optimal tax policy aims to raise revenue efficiently and fairly while encouraging the bona fide taxpayers and punishing the mala fide ones

Aggressive export strategy

  • The Survey seeks an “aggressive export strategy” for the investment-driven growth model.
    • India’s share in global exports is so low that it should focus on market share.
    • World trade is currently facing some disruptions. But the current disruptions provide an opportunity for India to insert itself into global supply chains.

Source: https://www.thehindu.com/opinion/editorial/blue-sky-visions-on-economic-survey-2018-19/article28286590.ece

Moderator
By Moderator July 5, 2019 12:09