Relevance: G.S Paper: III: Indian Economy, Government Budgeting.
From Upanishads to Charaka Samhita, from Kautilya to Mahatma Gandhi, from Deng Xiaoping to Adam Smith and John Maynard Keynes, Chief Economic Adviser Krishnamurthy V Subramanian dips deep into mankind’s vast knowledge pool, seamlessly drawing examples from ancient wise men as well as contemporary thinkers to buttress modern economic arguments in his maiden Economic Survey.
The Survey’s cover is of a blue hue, which, according to the CEA, represents “blue sky thinking”, adopts an “unfettered approach in thinking about the appropriate economic model for India”.
Subramanian questions the mainstream economists’ fixation to chase “equilibrium”, arguing that it is about time to move beyond the traditional variables to achieve progress.
In the chapter entitled “Shifting Gears: Private Investment as the Key Driver of Growth, Jobs, Exports and Demand”, he quotes Friederich Von Hayek’s, 1974 Nobel prize speech to reinforce the point. “If man is not to do more harm than good in his efforts to improve the social order, he will learn that in this, as in all other fields where essential complexity of an organized kind prevails, he cannot acquire the full knowledge which will make mastery of the events possible. He will therefore have to use what knowledge he can achieve, not to shape the results as the craftsman shapes his handiwork, but rather to cultivate a growth by providing the appropriate environment, in the manner in which the gardener does this for his plants.”
In a special box on “Tax evasion, wilful default, and the Doctrine of Pious Obligation,” Subramanian, perhaps seeks to appeal to religio-moral conscience of tax dodgers, arguing that the repayment of debt in one’s own life is prescribed as necessary by scriptures across religions.
“In Hinduism, non-payment of debts is a sin and also a crime. The scriptures ordain that if a person’s debts are not paid and he dies in a state of indebtedness, his soul may have to face evil consequences.
Therefore, it is the duty of his children to save him from such evil consequences. This duty or obligation of a child to repay the debts of the deceased parent is rested upon a special doctrine, known as “The Doctrine of Pious Obligation“.
Under Islam, Prophet Muhammad advocated –Allaahummainnia’oodhibika min al-ma’thamwa’lmaghram (O Allaah, I seek refuge with You from sin and heavy debt).” A person cannot enter Paradise until his debt was paid off. All of his wealth could be used to pay the debt and if it is insufficient then one or more heirs of the deceased could voluntarily pay for him.
The Bible says, “Let no debt remain outstanding except the continuing debt to love one another -Romans 13:8″ and “The wicked borrows and does not repay, but the righteous shows mercy and gives -Psalm 37:21.”
Precisely the point Subramanian seeks to make in the Economic Survey. “Real people do not always behave like robots, rational and unbiased individuals that form the basis of classical economic theory called “homo economicus”.
HIGHLIGHTS
* Survey sees FY20 GDP growth at 7%, higher growth on stables macros.
* India needs to grow at 8% per year to be $5 trillion economy by FY25
* Survey suggests diplomatic type privileges, naming roads for top taxpayers
* It recommends a renewed focus on pushing up exports.
*Govt should foster the growth of large firms instead of focusing on smaller firms.
* Use public data to revolutionise development in the country.
*Looking beyond the economics of equilibrium, survey makes case for investment-driven “virtuous cycle” to sustain growth at 8%.
* Investment the “key driver” of simultaneous growth in demand, jobs, exports & productivity
* Green shoots in investment activity seems to taking hold.
* Rural wage growth started increasing since mid-2018.
* Political stability should push the animal spirits of economy.
* Poor enforcement of contracts and dispute resolution is a big hurdle. Faster legal process should be top priority.
* Savings & growth are positively co-related. Savings must increase more than investment.
* Constant recalibration based on real time data. Data must be created as a public good “of the people, by the people, for the people.
* Survey argues that nudging behaviour change is simplest way to solve many social issues.
* Top policymakers must ensure actions are predictable. Policymaking needs:
- Clear Vision
- Strategic blueprint
- Tactical tools for constant recalibration
* Success of MGNREGS shows govt schemes can make a difference on the ground with skilful use of technology
* A minimum wage policy for bottom rung of wage earners to drive up demand and strengthening the middle class.
* Indian MSMEs need to be freed from shackles that convert them into dwarfs. MSMEs need to be seen as a source of innovation, growth and job creation.
* Policy should enable MSMEs to grow, create greater profits for their owners and contribute to job creation and productivity in the economy .
* India needs to increase per capita energy consumption to raise real per capita GDP by US$ 5000 and improve its HDI ranking.
* The Survey is inspired by Gandhiji’s Talisman: “…Recall the face of the poorest man [woman], and ask yourself, if the step you contemplate is going to be of any use to him [her].
* India will enjoy the “demographic dividend” phase in the next two decades but some states will start transitioning to an ageing society by the 2030s.
* India moving forward from Swachh Bharat to Swasth and Sundar Bharat.
* The Survey visualises creating a Detroit for Electric Vehicles in India.
*Ease labour laws to spur job growth.
* The Survey seeks reform in lower judiciary
* Govt stands by the fiscal consolidation path.
* Jan-March economic slowdown due to poll related related activity.
* Greenshoots in investment seems to be taking hold.
* NBFC stress reason for FY19 slowdown.
* Decline in NPAs should push up CAPEX cycle.
* General fiscal deficit seen at 5.8% in FY19 VS 6.4% in FY18.
* Investment rate seen higher in FY20 on improved demand.
* Oil prices seen declining in FY20.
*Accommodative MPC policy to help cut real lending rates.
Inclusive growth through affordable, reliable and sustainable energy remains a key developmental challenge, something that the CEA pertinently quotes the Rig Veda to buttress: “Sun is the soul of all animate and inanimate”.
There is a clear case for use of technology to deliver welfare schemes, NREGA clearly is a case in point. The survey drives home the point by citing Sanskrit Subhashitas: “Work gets accomplished by putting in effort, and certainly not by mere wishful thinking.”
And how can a comprehensive report card on the world’s fastest growing economy be complete without quoting John Maynard Keynes, arguably the discipline’s most fêted practitioner? Clearly not. Subrmanian’s debut survey cites Keynes’s 1909 paper in The Economic Journal “Recent Economic Events in India”.