What does the Economic Survey tell us about the economy?
The presentation of the Economic Survey a day before the budget is important for making sense of the latter. The survey is also important on its own as the government’s official statement on the state of the economy. More so in a year of domestic and international turbulence which has made any prediction of future economic growth difficult. These uncertainties are part and parcel of policymaking although some of them have been created by the government itself—such as through the demonetisation of high-value banknotes on 8 November. But that is what makes the Economic Survey crucial—not just in making sense of the way the economy responds to these shocks but also in assessing existing economic fundamentals. The survey this year was expected to bring clarity on both counts.
The big expectation was for some indicators of how the economy has performed as a result of demonetisation. This expectation was not just on the amount of money that has been returned to the banking system but also on crucial macro indicators such as economic activity, inflation and government revenue. These are important given the slowdown that the economy has seen even before demonetisation was announced. The fact that this year’s budget and consequently the Economic Survey were presented a month earlier than usual meant that data on most indicators was not available and if available was not robust enough.
But even with the available data, there was certainly enough that could have been said. While there is a chapter on demonetisation in the survey, it has failed to assuage the fears of an impending crisis in the economy. The challenges on the external front, particularly after the rise of protectionist tendencies in major economies, notwithstanding, the domestic economy itself has seen collapse of private investment as well as private consumption. The recent numbers based on the Index of Industrial Production (IIP) or the Purchasing Managers Index (PMI) along with data from the manufacturers’ association have clearly pointed to a decline in economic activity in recent months. There is now more than anecdotal data, including data from tax collection, which suggests that the economy may be far from recovering.
The absence of credible and timely data on most of the indicators of the economy points to the lack of importance that we attach to official and non-official sources of data. To a certain extent, the survey admits to this limitation with a promise to bring out a second instalment later in the year. Hopefully, this will provide a better and deeper understanding of the economy and the challenges it faces. But where it lacks on these, it does make up by including an analysis of several aspects of the economy which have remained unexplored. This has been the trend for several years now, with the Economic Survey expanding the scope of the survey to also examine some of the trends in the economy which may not be relevant from the perspective of the budget but are important pointers to the changing nature of the economy itself. While doing so, the survey has gone beyond the usual metrics and for the first time included data and estimates from ‘big data’ sources.
Some of these have been picked up and presented as ‘Eight Interesting Facts about India’ right in the beginning of the survey. These are not just interesting facts but also important issues that are important for understanding the changing nature of the economy. Let me highlight three of these. The first is the data on migration using information from railways. While there may be arguments on whether this is the current yardstick to measure migration, there is no denying the fact that communication and transportation are going to be big drivers of change. Not just in the way the economy is organized with people migrating but also trade across districts and states within the country. These signal a convergence in various markets which have implications for labour as well as for capital.
The second is the increasing divergence across states within the country. Despite increasing integration, as confirmed by the migration and trade data, the increasing divergence across states is certainly a cause for worry. Inequality may not only affect economic outcomes in the long run but may also be important for the political stability of the country.
The third is the nature of urbanization, which is highlighted in the map of Bengaluru. Although the survey highlights this in the context of the potential of property tax, what is also important to note is that this spatial concentration in metropolitan areas is now turning into a major challenge. The concentration of wealth and economic activity around these metropolitan areas will be another challenge for integration of the national economy; it will also be a challenge for urban governance. Some of these have been known and have been pointed out in different contexts. The use of ‘big data’ may help in unravelling of the complexity of the problems and challenges that these trends point to.
But these also show the need to have better quality information on the aspects of the Indian economy which remain a puzzle. This is true not only for the informal sector but also for the formal sector, where a large amount of information otherwise available with different agencies can be useful in designing policy. And the only way to do it is to allow the large community of researchers in India as well as outside to access and utilize the data.
Himanshu is an associate professor at Jawaharlal Nehru University and visiting fellow at Centre de Sciences Humaines, New Delhi.