The Union Minister for Finance and Corporate Affairs presented the Economic Survey 2018-19 in the Parliament. This survey, orchestrated by new chief economic advisor Krishnamurthy V Subramanian, put forward its primary objective: to facilitate India’s growth into a $5 trillion economy by 2024-25.
The Role of Economic Survey
The Economic Survey is an appraisal report prepared annually by the Economic Division of the Department of Economic Affairs in the Finance Ministry under the directive of the Chief Economic Adviser. Established in the year 1964, the first Economic Survey was presented in India in 1950-51. The survey is separate from the budget and is distributed beforehand to provide context for the budget.
Achieving a $5 Trillion Economy
India requires sustained real GDP growth rate of 8% to become a $5 trillion economy by 2024-25. According to the survey, this goal can be reached by instigating a “Virtuous Cycle” of savings, investment, and exports, with private investment as the primary catalyst. The survey emphasizes that this cycle should be balanced and constant.
Applying Behavioural Economics
Drawing from Nobel Laureate Richard Thaler’s Behavioural Economics Theory, the survey proposes an ambitious behavioural change agenda. It suggests that by inducing behavioural economics principles to various issues such as gender equality, health, savings, tax compliance, and credit quality, it can incite social change, aiding India’s transition to a $5 trillion economy.
Nudge Theory
Richard Thaler, American economist and Nobel laureate, introduced the nudge theory. It implies that people can be encouraged and influenced to pursue or desist certain actions through nudges, rather than being forced or penalized.
Policies for Promoting MSME Growth
The survey draws attention to the necessity of intervention for “dwarfs” — firms having less than 100 workers despite being over 10 years old. Policies proposed include introducing a sunset clause of fewer than ten years, deregulating labor law restrictions, and revising Priority Sector Lending (PSL) guidelines for young firms in high employment elastic sectors.
| Dwarf firms statistics |
|---|
| Dwarf firms account for over 50% of all manufacturing firms |
| Their contribution to employment is 14% |
| They contribute mere 8% to productivity |
Incentives Based on Size and Sunset Clause
The Economic Survey criticizes continuous support to small and medium-sized enterprises and proposes a sunset clause for all size-based incentives. The argument put forth is to nurture “infant” firms and provide targeted, timely support rather than indefinite assistance.
Minimum Wage System for Inclusive Growth
The survey recommends a well-constructed minimum wage system as a tool for worker protection and poverty reduction. It endorses the rationalization of minimum wages proposal under the Code on Wages Bill. Measures suggested include notifying a ‘National Floor Minimum Wage’ by the Central Government, setting state’s minimum wages not lower than the ‘floor wage’, regular notifications on minimum wages through a ‘National level dashboard,’ and a toll-free number for grievances.
Changing Demographics in India
The survey predicts a significant slowdown in population growth over the next two decades and suggests consolidation of schools and phased increase in retirement age along with investment in healthcare.
Lower Judiciary Reforms
The survey examines ways to increase capacity in the lower judiciary. It attributes delays in contract enforcement and dispute resolution as the most significant impediments to the ease of doing business and higher GDP growth in India.
Data – A Crucial Public Good
The survey stresses the importance of data as a public good. It advocates for government intervention in data creation, especially for the poor and social sectors. Consolidating various datasets held by the Government can generate multiple benefits within the legal framework of data privacy.