India’s annual Economic Surveys once pedantic tomes that very few folks read, have received a fresh lease of life in recent years. Chief Economic Advisors such as Raghuram Rajan and Arvind Subramanian used these documents to put forth some blunt opinions, indulge in out-of-the-box thinking and float controversial trial balloons in racy prose. The latest Economic Survey presented by Chief Economic Advisor Krishnamurthy Subramanian may not score high on linguistic flair, but it is a lucid document quite accessible to the lay reader.
The key feature that sets apart this year’s Survey from its predecessors is its single-minded focus (in Part 1) on one agenda item — the PM’s vision of transitioning India to a $5 trillion economy by FY25. It argues that policy-making today needs to account for global economies being in a constant state of dis-equilibrium and proceeds to outline a blueprint to achieve the $5 trillion goal. Upending conventional wisdom that India needs to fire up its consumption engine for high growth, it argues that it needs to shift gears to an investment-led model that sets off a virtuous cycle. It demonstrates, with factual evidence from other economies, that a higher investment rate has the potential to diversify a country’s industrial base, create jobs and lift household incomes, thereby setting off a virtuous cycle of higher consumption and savings rates. It posits that India’s expanding work-age cohort can bring about the higher savings rate needed to kickstart this cycle with some adroit use of behavioural economics. While these arguments are appealing in theory, they seem to gloss over the fact that the investment- and export-led growth models pursued by China and the East Asian nations benefited immensely from the openness of world trade in the 1990s, while the current environment is one of simmering hostilities. The suggestion that India should use the present disruptions to ‘insert itself into global supply chains’ may be easier said than done. One also wonders if the private sector will really take the first step in this virtuous cycle, without evidence of strong demand growth. It does not pinpoint the sectors or skills needed for India’s services-driven economy to transform into an export powerhouse. Part 2 of the Survey undertakes a pragmatic assessment of the current state of the economy and its progress on climate and human development goals, but the solutions offered are somewhat generic.
The Survey’s macro prescriptions need fleshing out. But its micro analyses on the key constraints to investment-led growth are spot on. For instance, it presents striking evidence that India’s tax policies have provided perverse incentives for MSMEs to remain sub-scale and uncompetitive, while what is needed for better productivity and job creation is their quick scaling up, with sunset clauses based on age. It rightly insists that private enterprise cannot thrive amid lack of rule of law and policy flip-flops and presents convincing fixes to the judicial backlog. Past governments have shown limited inclination to draw upon the prodigious analyses in the Economic Surveys to inform their policy decisions. One hopes this time is different.