Snippet of Economic Survey 2019-20
The Economic Survey 2019-2020, presented by Finance Minister Nirmala Sitharaman, mentioned India’s aspiration of becoming a US$5 trillion economy depending critically upon on two factors:
Promoting ‘pro-business’ policy that unleashes the power of competitive markets to generate wealth.
Weaning away from ‘pro-crony’ policy that may favour specific private interests, especially powerful incumbents.
The survey also states that India’s global positioning in ease of doing business has improved from 142 in 2014 to 63 in 2019. It states that India still trails in certain parameters such as ease of starting business, registering property, paying taxes and enforcing contract.
Further, it states that Public Sector Banks (PSBs) are inefficient as compared to their peer groups on every performance parameters. In 2019, investment for every rupee in PSBs, on an average, led to a loss of 23 paise while, in New Private Banks (NPBs), it led to a gain of 9.6 paise. The survey also made various suggestions like Employee Stock Ownership Plan (ESOP), board representative to revive PSBs and use of new technologies like Artificial Intelligence (AI), big data, machine learning etc.
In the last few years, since, almost all the PSBs are struggling with bad loans, implementing such an initiative would revive these banks.
The public sector banks have been acting as a key pillar to support the credit growth historically and even today, PSB accounts for nearly 70 per cent of the market share in Indian banking. Thus, government’s efforts to revive and boost the health of these banks are likely to be a key trigger for the country’s economic growth.
Besides, Economic Survey pointed out that India’s GDP growth in the first half of FY20 slowed down to 4.8 per cent, owing to the weak environment for global manufacturing, trade and demand. During this period, the country’s Current Account Deficit (CAD) narrowed down to 1.5 per cent of the GDP, as against 2.1 per cent in the first half of FY19.
We believe the government has very limited headroom of increasing its spending activities in order to spur the economy, taking into consideration, the falling tax collections amid economic slowdown and huge cut in the corporate tax rate. However, non-tax revenue like huge dividend from the country’s central bank and another large income from telecom companies through AGR fees likely to restrict further widening of fiscal deficit.
The equity market participants are expecting big stimulus from the government which is reflecting in the strong rally on Nifty and Sensex. Also, government needs to broaden its fiscal deficit to stimulus the country’s economic activity. But then, it will also have to find a way to bridge the gap between revenue and spending. On February 1 (Saturday), we will come to know how Finance Minister has tackled the economic slowdown and simultaneously, managed to keep fiscal deficit under check.
The survey suggests that government must systematically examine areas of needless intervention and undermining of markets but it does not argue that there should be no government intervention. One example that is mentioned in the survey to substantiate this suggestion is debt waiver, where survey explains that debt waivers disrupt the credit culture. The survey further states that full waiver beneficiaries consume less, save less, invest less and are less productive after the waiver, as compared to the partial beneficiaries. They reduce formal credit flow to the very same farmers thereby, defeating the purpose. Instead, the survey suggests that the interventions that were apt in a different economic setting may have lost their relevance in a transformed economy. Eliminating such instances will enable competitive markets to spur investments and economic growth.