The Union government has projected India’s GDP growth for 2019-20 at 7 per cent, up from a five-year low of 6.8 per cent, on the back of an anticipated pick-up in investment and consumption.

According to the Economic Survey 2018-19, tabled by Finance Minister Nirmala Sitharaman in Parliament on July 4, India continues to remain the fastest-growing major economy in the world in 2018-19, despite a slight moderation in its GDP growth from 7.2 per cent in 2017-18 to 6.8 per cent in 2018-19.

“India’s growth of real GDP has been high with an average growth of 7.5 per cent in the past five years (2014-15 onwards). The economy grew at 6.8 per cent in 2018-19, thereby experiencing some moderation in growth when compared to the previous year,” it said.

This moderation in growth momentum is mainly on account of lower growth in agriculture, trade, transport, communication and services related to broadcasting among others, it said.

During the past five years, India’s economy has performed well, it said, adding that the government has ensured that the benefits of growth and macroeconomic stability reach the bottom of the pyramid by opening up several pathways for trickle-down.

“To achieve the objective of becoming a $5 trillion economy by 2024-25, as laid down by the prime minister, India needs to sustain a real GDP growth rate of 8 per cent,” it said.

As per the survey, GDP growth for 2019-20 is projected at 7 per cent, reflecting a recovery in the economy after a deceleration in the growth momentum throughout 2018-19.

“The growth in the economy is expected to pick up in 2019-20 as macroeconomic conditions continue to be stable while structural reforms initiated in the previous few years are continuing on course. However, both downside risks and upside prospects persist in 2019-20,” it said.

Meanwhile, the survey retained the fiscal deficit at 3.4 per cent of GDP for the current fiscal, the same as projected in the revised estimate of the interim Budget 2019-20.

However, general fiscal deficit - Centre and states combined - has been pegged at 5.8 per cent in 2018-19, down from 6.4 per cent in the previous fiscal.

The current account deficit (CAD) in the economy increased from 1.9 per cent of GDP in 2017-18 to 2.6 per cent in April-December 2018.

“The widening of the CAD was largely on account of a higher trade deficit driven by rise in international crude oil prices (Indian basket). The trade deficit increased from $162.1 billion in 2017-18 to $184 billion 2018-19,” it said.

Banking

The performance of the banking sector has improved as bad loans declined in the past fiscal, but financial flows are constrained due to a fall in money raised from capital markets and stress in the non-banking financial sector, the survey said. The monetary policy witnessed a U-turn over the past year. The benchmark policy rate was first hiked by 50 basis points (bps) and later reduced by 75 bps due to weaker than anticipated inflation, growth slowdown and softer international monetary conditions, the survey said. The performance of the banking system has improved as non-performing asset ratios declined and credit growth accelerated, it said.

Taming inflation

India’s inflation rate has moved to a more stable and low level in the past five fiscal years, and controlling price surge remains a key policy focus area of the government, the survey said. Retail inflation during the first month of the current fiscal stood at 2.9 per cent, down from 4.6 per cent a year ago. Food inflation based on Consumer Food Price Index (CFPI) declined to a low of 0.1 per cent during the financial year 2018-19, the survey said. The survey states that the economy witnessed a gradual transition from a period of high and variable inflation to a more stable and low level of inflation in the past five years.

Food subsidy bill

There is a need to address the “burgeoning” food subsidy bill in order to sustain the government’s food security programme for the poor, the survey said. In its interim Budget, the government had pegged the food subsidy bill at Rs 1,84,220 crore for 2019-20 as against Rs 1,71,298 crore last year. “For sustainability of food security operations, the issue of burgeoning food subsidy bill needs to be addressed. The rationalisation of food subsidy and greater use of technology in food management will ensure food security for all,” the survey said.

Energy consumption

India’s economic growth will depend upon the ability to provide affordable, reliable and sustainable energy to citizens and the country is required to raise per capita energy consumption by at least 2.5 times to increase per capita income by $5,000, the survey said. It said India has the potential for $30 billion annual investment in renewables in the next decade and even beyond that in view of its ambitious target of having 175 GW of clean energy by 2022. As per the survey, India has to quadruple its per capita energy consumption if the country aims to rise in human development index.

Highlights

* GDP growth pegged at 7 per cent in 2019-20, up from 6.8 per cent last fiscal

* Growth in current fiscal to be driven by investment and consumption

* Sustained 8 per cent growth needed to become a $5 trillion economy by 2024-25

* Huge political mandate augurs well for growth prospects

* Investment is the “key driver” of simultaneous growth in demand, jobs, exports and productivity

* Green shoots in investment, visible pick-up in credit growth seen

* Crude oil prices to decline in 2019-20, to push consumption

* General government fiscal deficit seen at 5.8 per cent in 2018-19, against 6.4 per cent last fiscal

* Projects imports to grow at 15.4 per cent, exports at 12.5 per cent for 2018-19

* Projects 283.4 million tonnes of foodgrain production in 2018-19

* Foreign exchange reserves at $422.2 billion in June

* Suggests policies to unshackle MSMEs to grow, create jobs and enhance productivity

* Calls for reorienting policies to promote young firms that have the potential to become big, rather than small MSME firms that remain small

* Flags need to prepare for an ageing population; this necessitates more health care investment, increasing retirement age in a phased manner

* Highlights the immense potential of data of societal interest, says data should be “of the people, by the people, for the people”

* Legal reform, policy consistency, efficient labour markets and use of technology focus areas

* Contract enforcement biggest constraint to improve ease of doing business ranking; much of the problem is concentrated in the lower courts

* Low pay and wage inequality remain serious obstacles towards achieving inclusive growth

* Policy changes needed to lower overall lifetime ownership costs and make electric vehicles an attractive alternative to conventional vehicles

* Survey recommends harmonised overarching National Policy on Resource Efficiency