Home >Opinion >Columns >Opinion | The Economic Survey fails to put the spotlight on real issues

Chief economic adviser Krishnamurthy Subramanian had the unenviable task of presenting the first Economic Survey of the second National Democratic Alliance (NDA) government at a time when most indicators show a clear slowdown in the economy. He also had the responsibility of coming clean on the controversy over the national accounts, doubts on which have been raised by none other than his predecessor Arvind Subramanian. While there may be little merit in Arvind Subramanian’s estimates of gross domestic product (GDP), the issues raised by him deserve a response from the government. Most independent experts have voiced the need for an official assessment of the GDP methodology, regardless of Arvind Subramanian’s criticism of the GDP estimates.

The Economic Survey mentioned none of this. It also failed to provide a correct assessment of the state of the economy, which is its primary objective. It remains the official document presented to Parliament on the state of the economy. Even by the official assessment of the Central Statistics Office (CSO), gross value added growth for 2018-19 was the lowest in at least four years, with 2015-16 being the only year during this period when it hit 8%. Since then, it has declined steadily to 7.9% (2016-17), 6.9% (2017-18) and 6.6% in 2018-19. The growth rate in the last quarter was 5.8%, the lowest since the NDA took over in 2014. More recent indicators suggest a decline in automobile sales, which account for a significant share of manufacturing output. The Purchasing Managers’ Index for services suggests a contraction in services output. Agricultural growth rate this year is expected to be almost half the previous year’s. The agrarian sector is in a crisis, with the terms of trade not in its favour. Rural wages have stagnated.

Despite the overwhelming evidence of the economy showing signs of acute distress and growing unemployment, there is neither a diagnosis of where things went wrong, nor an acknowledgement of the challenges in reviving growth. These challenges are not just domestic—arresting a decline in consumption and reviving investment at a time when the financial sector is staring at another crisis—but also emanate from the external front, given the uncertainty in West Asia and the aggressive stance of the US on tariffs. As the survey rightly points out, with assumptions, the economy will have to grow at least at 8% per annum if the government’s ambitious target of a $5 trillion economy by 2024-25 is to be achieved. However, except for one year, the government in its first term has failed to achieve this, despite its windfall gains from the collapse of oil prices.

To be sure, the survey does offer prescriptions for achieving the Prime Minister’s ambitious target. It recommends following the East Asian economic model of increasing investment. But this is not new. This has been prescribed since 2014, but without any success in raising the investment rate. Despite interest rate cuts, there has not been any significant improvement in the investment rate, which remains below 30% of GDP. With government finances already stretched and little room for expansion, the onus of increasing investment is on the private sector. And the onus of raising savings is on household sector, which is already seeing its purchasing power decline. Seeing investment as the panacea for all that ails the economy also stems from a wrong macro-economic understanding that assumes an investment boost to be the only way of achieving higher growth. This is unlikely to be effective in an economy suffering from declining demand. The situation is far more serious in rural areas, where stagnant wages and incomes from agriculture have led to an agrarian crisis. Unfortunately, there is no mention of the agrarian crisis in the entire first volume, which talks about achieving a $5 trillion economy.

Similar to earlier surveys, volume one of this survey discusses issues that are more likely to be of academic interest. The focus of this survey on behavioural economics is noteworthy. So is the emphasis on blind application of neoclassical equilibrium models to the Indian economy. But then it goes on to argue in favour of investment as the engine of growth without any rationale for higher investment—or its source—in a demand-constrained economy. Another noteworthy chapter is on data, which emphasises its public nature. But these remain academic matters, given the restrictive approach of the government on the dissemination of public data, including its own surveys. This has been seen not just in the case of employment surveys of the National Sample Survey Office, but also other data of public importance, none of which finds any mention in this Economic Survey.

Although some of these crucial issues of employment and agrarian crisis do find mention in the second volume, there is no acknowledgment of the magnitude of the problem or an analysis of policy failures. The academic part of the survey is likely to generate more discussion than the real issues, which should have been assessed and presented to the public at large. Like earlier surveys, this survey has everything except an honest and clear assessment of the state of the economy and the challenge of reviving it.

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