The Economic Survey - the annual flagship document of the finance ministry’s economic affairs department - holistically incorporates two volumes that talk about various government schemes, trends of the economy with data, reviews and assessment of economic policies of the previous year.

Volume I discusses the policies and outlook and contains an analytical review of the economy. It provides evidence-based analyses of recent economic developments to enable informed policymaking. Volume II describes recent developments in all major sectors of the economy and incorporates a descriptive review with detailed statistical tables and data.

Chief Economic Adviser Krishnamurthy V. Subramanian is the architect of this year’s Economic Survey. Finance Minister Nirmala Sitharaman tabled the survey on July 4, a day before presenting the Union Budget 2019-20.

Interestingly, the Economic Survey 2018-19 is the first such document prepared by the Narendra Modi 2.0 government. The survey aptly recognises the power and skills of India’s youth and vehemently upholds the vision of turning India into a $5 trillion economy by 2025. The document recalls the words of Prime Minister Modi: “If every one of the 130 crore Indians takes one step forward, the country too will take that many steps ahead.”

By laying out the strategic blueprint for achieving this well-defined vision, the survey extends its absolute commitment to a collective endeavour: 130 crore Indians creating an inclusive India by 2022 when we complete 75 years of Independence.

In fact, India has already entered the demographic dividend phase and will remain in this zone for more than two decades. The data on demography highlights that the working-age population (20-59 years), which comprised 50.5 per cent of the overall population in 2011, will increase to about 60 per cent in 2041.

The latest survey departs from traditional thinking by viewing the economy as being either in a virtuous or a vicious cycle, and thus never in equilibrium. Rather than viewing the national priorities of fostering economic growth, demand, exports and job creation as separate problems, the survey views these macroeconomic phenomena as complementary to each other.

Undoubtedly, to achieve the vision of a $5 trillion economy, India needs to shift its gears to accelerate and sustain a real GDP growth rate of 8 per cent. It also puts emphasis on macroeconomic stability - manageable current account deficit, mild inflation that rests in the comfort zone and lower fiscal deficit.

Private investment: A key driver of the economy

The survey clearly recognises the centrality of investment as the “key driver” that catalyses the economy into a self-sustaining virtuous cycle when supported by a favourable demographic phase. It focuses on reviving and rejuvenating MSMEs to generate jobs and become more productive so that they can become globally competitive. However, this transformative step invariably needs legal reform in the right direction, chalk out effective policies with the vision and strategic blueprint, cut the cost of capital and rationalise the risk-return trade-off for investments.

The document considers the private sector as the engine of India’s economy and calls for designing economic policies that boost private investment by rebuilding their confidence, restoring their faith in the economy and disseminate optimism in the system. In essence, the survey identifies private investment as the key driver of growth, jobs, exports and demand.

International experience, especially from high-growth East Asian economies, suggests that such growth can only be sustained by a “virtuous cycle” of savings, investment and exports catalysed and supported by a favourable demographic phase. Investment, especially private investment, is the “key driver” that drives demand, capacity, increases labour productivity, introduces new technology, allows creative destruction and generates jobs.

As investment represents a forward-looking activity, investors eventually make their decisions based on the risk-adjusted return they expect. In other words, if two projects offer the same return but one of them is riskier, then investors choose the less risky project to invest. Therefore, systematically lowering the risks faced by investors is critical for the success of the investment-driven model for economic growth. Risk pertains to the possibilities of upside, when a project performs well, and downside, when the project fails. So, the implementation of the Insolvency and Bankruptcy Code (IBC) is crucial in this regard as it puts into process a framework for reconfiguration of assets after business failure.

As a concerted effort made in the enactment and implementation of IBC, India improved its ‘resolving insolvency’ ranking from 134 in 2014 to 108 in 2019. This is a significant jump given that the country was stagnating in the earlier position for many years. India won the Global Restructuring Review award for the most improved jurisdiction in 2018.

Behavioural economics: A vital tool for transforming the economy

Not surprisingly, the survey utilises the significant advances made in behavioural economics in the past few decades, which culminated in the 2017 Nobel Prize in Economic Sciences being awarded to Richard Thaler. Drawing on the psychology of human behaviour, behavioural economics provides insights to ‘nudge’ people towards desirable behaviour. The impact created by the government’s flagship initiatives such as Swachh Bharat Mission, Jan Dhan Yojana and Beti Bachao Beti Padhao provide testimony to the potential for behavioural change in India. Given our rich cultural and spiritual heritage, social norms play a very important role in shaping the behaviour of each one of us.

Behavioural economics provides the necessary tools and principles to not only understand how norms affect behaviour but also to utilise these norms to effect behavioural change. The survey lays out an ambitious agenda for behavioural change by applying the principles of behavioural economics to several issues, including gender equality, a healthy and beautiful India, savings, tax compliance and credit quality.

The survey illustrates how the Swachh Bharat Mission and Beti Bachao Beti Padhao have successfully employed behavioural insights. Using such learning, the survey lays out an ambitious agenda for social change in the following ways…

• From Beti Bachao Beti Padhao to BADLAV (Beti Aapki Dhan Lakshmi Aur Vijay Lakshmi)

• From Swachh Bharat to Sundar Bharat

• From ‘Give it up’ LPG subsidy to ‘Think about the Subsidy’

• From tax evasion to tax compliance

First, a key principle of behavioural economics is that while people’s behaviour is influenced significantly by social norms, understanding the drivers of these social norms can enable change. In India, where social and religious norms play such a dominant role in influencing behaviour, behavioural economics can provide a valuable instrument for change. So, beneficial social norms can be furthered by drawing attention to positive influencers, especially friends / neighbours who represent role models with which people can identify. Second, as people are given to tremendous inertia when making a choice, they prefer sticking to the default option. By the nearly costless act of changing the default to overcome this inertia, desired behaviour can be encouraged without affecting people’s choices. Third, as people find it difficult to sustain good habits, repeated reinforcements and reminders of successful past actions can help sustain changed behaviour.

Financial sector: The heart of the economy

India’s financial sector is truly a reflection of a mixed economy with public sector banks, private, foreign banks, stock exchanges and primary markets. Of course, a well-developed financial system is the sign of the country’s development. It is the life blood of commerce and trade. It is the heart of the economy because this system provides adequate financial support and other facilities to entrepreneurs and thereby enhances the volume of capital formation and ensures an optimum utilisation of the financial resources.

The financial system consists of four components - financial institutions, financial markets (money market and capital market), financial instruments and financial services.

The government is committed to promote inclusive development to ensure that every segment of the poor, weak and the downtrodden has easy access to reasonable and cost-effective banking facilities in the shortest possible time. The effective and efficient banking system “is the backbone of a growing economy”. The RBI is trying to strike a balance between the twin objectives of increasing banking access and improving the quality of customer service and protection. Of course, bankers - as facilitators of growth - must adopt the best worldwide practices, best technology and suitable financial products to meet the capital requirements of a diverse spectrum of borrowers.

The investment-led growth model implies a rapid expansion in the financial system by a factor of magnitude - both banks and capital markets. In turn, this runs up the risk that such a rapid expansion could be disrupted by a major financial crisis that derails the savings-investment dynamic. This is no idle concern as illustrated by the Asian crisis of 1997-98. Our own experience of rapid credit expansion from 2006 to 2012 illustrates the same risk, where the quality of credit sharply deteriorated when the quantity was expanded. In this context, recent efforts to clean up the banks balance sheets and establish a bankruptcy process should be seen as a valuable investment that must be completed.

A macro view of the state of the economy

In its India Economic Update 2018 report, the World Bank divides India’s economic growth history since 1970 into four segments. The first is from 1970 to 1990, when the economy maintained an average growth rate of 4.4 per cent. This subsequently accelerated in the 1991-2003 period to an average of 5.4 per cent. Thereafter, growth accelerated sharply for a short period from 2004 to 2008, where it averaged 8.8 per cent, which then slowed down to a “still impressive” average of 7.1 per cent in the 2009-17 period.

The US and China are the largest economies in terms of nominal and PPP, respectively. Tuvalu is the world’s smallest economy in both methods. In the exchange rate method, the largest economy (US) shares 23.3 per cent of global wealth, while the smallest economy (Tuvalu) contributes only 0.00005 per cent.

India remained 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. For the global economy, 2018 was difficult, with the output growth falling from 3.8 per cent in 2017 to 3.6 per cent in 2018. The growth rate of world output is projected to fall further to 3.3 per cent in 2019 as the growth of both advanced economies and emerging and developing economies are expected to decline.

The key data on the Indian economy for FY 2018-19 are summarised as follows…

• The growth of the Indian economy moderated in 2018-19 with a rate of 6.8 per cent, slightly lower than 7.2 per cent in 2017-18. Yet, India continued to be the fastest-growing major economy in the world.

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

• This moderation in growth momentum is mainly on account of lower growth in ‘agriculture & allied’, ‘trade, hotel, transport, storage, communication and services related to broadcasting’ and ‘public administration & defence’ sectors.

• India maintained its macroeconomic stability by containing inflation within 4 per cent and by maintaining a manageable current account deficit (CAD) to GDP ratio. The CAD to GDP was higher in 2018-19 as compared to 2017-18, primarily due to higher oil prices, which were about $14/bbl higher in 2018-19 vis-à-vis the previous year. However, the CAD started to narrow in the third quarter of the year.

• The manufacturing sector was characterised by higher growth in 2018-19 while growth in the agriculture sector witnessed tapering. Growth in investment, which had slowed down for many years, has bottomed out and has started to recover since 2017-18.

• In fact, growth in fixed investment picked up from 8.3 per cent in 2016-17 to 9.3 per cent in 2017-18 and further to 10 per cent in 2018-19.

• Net FDI inflows grew by 14.2 per cent in 2018-19. Capital expenditure of the central government grew by 15.1 per cent in 2018-19, leading to an increase in the share of capital expenditure in total expenditure.

• Non-performing assets as a percentage of gross advances reduced to 10.1 per cent at the end of December 2018 from 11.5 per cent at the end of March 2018.

• Given the macroeconomic situation and structural reforms being undertaken by the government, the economy is projected to grow at 7 per cent in 2019-20.

• The outlook of the Indian economy appears bright with prospects of a pick-up in growth in 2019-20 on the back of a pick-up in private investment and robust consumption growth.

An overview of fiscal developments

Fiscal consolidation means doing everything to nip the fiscal deficit problem in the bud and preventing a heavy fiscal deficit situation from occurring in the future. In other words, it is the policy of the government to reduce money outflow (public expenditure) and increase money inflow (mainly tax collection). That is, it entails revenue augmentation and expenditure rationalisation.

Budget 2018-19 affirmed the government’s intent on fiscal consolidation. It aimed to revert to the path of fiscal rectitude after the temporary blip in 2018-19. A new fiscal targeting framework was adopted, which rests on the twin pillars of reducing debt and fiscal deficit. The revised fiscal glide path envisaged achieving a fiscal deficit of 3 per cent of GDP by FY 2020-21 and keeping central government debt to 40 per cent of GDP by 2024-25.

Let us go through the major fiscal developments during 2018-19…

• The medium-term fiscal policy statement presented along with Budget 2018-19 revised the fiscal deficit target for 2017-18, as a per cent of GDP, by 0.3 percentage points from 3.2 per cent to 3.5 per cent, owing to the spillover impact of the new indirect tax regime.

• It aimed to reach the fiscal deficit target of 3.3 per cent of GDP in 2018-19 BE, with projections for 2019-20 and 2020-21 at 3.1 per cent and 3 per cent, respectively.

• The debt-to-GDP ratio of the central government was projected at 48.8 per cent at the end of March 2019. It is targeted to decline to 46.7 per cent by the end of March 2020 and 44.6 per cent by the end of March 2021, restoring the long-term trend of decline in the debt-to-GDP ratio.

• The FY 2018-19 has ended with fiscal deficit at 3.4 per cent of GDP and debt-to-GDP ratio of 44.5 per cent (provisional).

• The salient changes in central government finances include improvement in the tax-to-GDP ratio, significant consolidation of revenue expenditure and gradual tilt towards capital spending over the years. These have led to a progressive reduction in primary and fiscal deficits.

• Budget 2018-19 envisaged a growth of 16.7 per cent in gross tax revenue (GTR) over the revised estimates (RE) of 2017-18.

• The GTR was estimated at Rs 22.7 lakh crore for BE 2018-19, which was 12.1 per cent of the GDP. The growth in GTR was estimated to be led by a 17.3 per cent growth in indirect taxes and 14.4 per cent growth in direct taxes over the revised estimates of 2017-18.

• Broadly, 51 per cent of GTR was estimated to be mobilised from direct taxes and the remaining 49 per cent from indirect taxes.

• Budget 2018-19 envisaged the generation of Rs 2.45 lakh crore of non-tax revenue, 27.2 per cent higher than 2017-18, of which roughly one-third of the increase is attributable to dividends and profits. Non-tax revenue constitutes about 1.3 per cent of the GDP in 2018-19.

• Budget 2018-19 has envisaged the generation of Rs 0.92 lakh crore of non-debt capital receipts, comprising Rs 0.12 lakh crore of recovery of loans and advances, and Rs 0.80 lakh crore of disinvestment receipts. As against this, Rs 1.03 lakh crore of non-debt capital receipts, including Rs 0.85 lakh crore from disinvestment, have been realised during 2018-19.

• Several challenges on the fiscal front in 2019-20 include revenue implications on the account of apprehensions of slowing of growth, revenue buoyancy of GST and provisioning for schemes such as PM-KISAN without compromising the fiscal deficit target.

Monetary indicators of the economy

Certainly, the RBI’s role is decisive in the socioeconomic front to ensure price stability by regulating economic evils - inflation and deflation. It is the apex institution of India’s monetary segment. The monetary mechanism, headed by the central bank, is the way in which changes in the money supply affect the rest of the economy and thereby generate desirable outcome in the system.

The Monetary Policy Committee (MPC) of the RBI had met six times in 2018-19 and twice in 2019-20. In its first bi-monthly monetary policy statement for 2018-19 in April 2018, the MPC decided to keep the policy repo rate unchanged at 6 per cent and continue with a neutral policy stance. In essence, the monetary policy witnessed a U-turn over the past year as the benchmark policy rate was first hiked by 50 bps and later reduced by 75 bps due to weaker-than-anticipated inflation, growth slowdown and softer international monetary conditions.

The key changes in policy rates is depicted in the table below…

In its sixth bi-monthly monetary policy statement, the MPC noted the pause in the rate hiking cycle by the US Federal Reserve, expectations of a positive outcome from US-China trade talks and downward risks to domestic inflation. Consequently, the MPC decided to change the stance of monetary policy from “calibrated tightening” to “neutral” and reduced the policy repo rate by 25 bps to 6.25 per cent in February 2019. The policy rate was further cut by 25 bps each in the first and second bi-monthly monetary policy statement for 2019-20 in April and June 2019. Moreover, the policy stance was changed to “accommodative” in June 2019.

Current trends in inflation

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. Headline inflation based on the consumer price index - combined (CPI-C) has been declining continuously for the past five years. Headline CPI inflation declined to 3.4 per cent in 2018-19 from 3.6 per cent in 2017-18, 4.5 per cent in 2016-17, 4.9 per cent in 2015-16 and 5.9 per cent in 2014-15. It stood at 2.9 per cent in April 2019 as compared to 4.6 per cent in April 2018. Main contributors of headline inflation based on CPI-C during FY 2018-19 are miscellaneous, housing, and fuel and light groups. The relative importance of services in shaping up headline inflation has increased.

Food inflation based on consumer food price index (CFPI) declined to a low of 0.1 per cent during FY 2018-19. Inflation based on wholesale price index (WPI) remained moderate at 3 per cent in 2017-18 compared to 1.7 per cent in 2016-17, -3.7 per cent in 2015-16 and 1.2 per cent in 2014-15. During FY 2018-19, WPI inflation stood at 4.3 per cent. Services and goods are trending differently. Rural inflation moderated but urban inflation rose in 2018-19 over the previous year.

States too witnessed a decline in inflation during the year. Many states have witnessed a fall in CPI inflation during 2018-19. Inflation in 23 states and Union Territories was below 4 per cent in FY 2018-19. Inflation ranged between -1.9 per cent to 8.9 per cent across states in FY 2018-19 compared to 1.5 per cent to 12.4 per cent in FY 2017-18. In rural areas, among major states / UTs, 16 states had recorded inflation of less than 4 per cent in FY 2018-19 as compared to 13 in FY 2017-18. However, in the case of urban areas, nine states recorded inflation of less than 4 per cent in FY 2018-19 as against 15 in 2017-18.

External sector of India

• India’s macroeconomic situation on the external side continues to be stable. Though the CAD is projected at 2.4 per cent of the GDP in 2018-19, up from 1.8 per cent in 2017-18, this is within reasonable levels.

• The widening of the CAD has been driven by a deterioration of trade deficit from 6 per cent of the GDP to 6.7 per cent across the two years.

• A rise in crude prices in Q4 of 2018-19 and a decline in the growth of merchandise exports have led to the deterioration of trade deficit. The acceleration in the growth of remittances has offset the deterioration of the CAD.

• In funding the CAD, the total liabilities-to-GDP ratio, inclusive of both debt and non-debt components, has declined from 43 per cent in 2015 to about 38 per cent at the end of 2018.

• The share of FDI has risen and that of net portfolio investment has fallen in total liabilities, thereby reflecting a transition to more stable sources of funding the CAD. In sum, although the CAD-to-GDP ratio has started to increase lately, the external indebtedness continues to be on a declining path.

• India’s foreign exchange reserves continue to be comfortably placed. Forex reserves stood at $422.2 billion as on June 14. The rupee traded in the range of 65-68 per $ in 2017-18 but depreciated to a range of 70-74 in 2018-19.

• The real effective exchange rate also depreciated in 2018-19, making India’s exports potentially more competitive. The income terms of trade - a metric that measures the purchasing power to import - has been on a rising trend, possibly because the growth of crude prices has still not exceeded the growth of India’s export prices.

• The exchange rate in 2018-19 has been more volatile than in the previous year, mainly due to volatility in crude prices, but not much due to net portfolio flows.

• Among the major economies running CAD, India is the largest foreign exchange reserve holder and eighth largest among all countries.

• India’s external debt was $521.1 billion at the end of December 2018, 1.6 per cent lower than its level at the end of March 2018.

• The composition of India’s exports and import basket has almost remained unchanged in 2018-19 over 2017-18. Petroleum products, precious stones, drug formulations, gold and other precious metals continue to be top export items.

• Crude petroleum, pearl, precious, semi-precious stones and gold remain as top import items.

• India’s main trading partners continue to be the US, China, Hong Kong, the UAE and Saudi Arabia.

Major trading partners

India’s largest export destination country continues to be the US, which accounted for 16 per cent of India’s exports (in value terms) in 2018-19, followed by the UAE, China and Hong Kong. However, in 2018-19, the growth of India’s exports to the Netherlands was the highest (40.7 per cent), followed by China (25.6 per cent) and Nepal (17.4 per cent).

China continues to be the largest source of imports for India accounting for 13.7 per cent of the total imported value in 2018-19. The other important sources from which India imports are the US, the UAE and Saudi Arabia. In terms of growth rates, imports from Singapore grew the highest at 118.1 per cent in 2018-19, followed by Hong Kong (68.5 per cent) and the UAE (37 per cent).

Sectors of Indian economy: Agriculture, industry and services

The modern theory of development argues that the right path for development is the transition from primary sector to secondary sector and ultimately to tertiary sector. The contribution of primary or agricultural sector to GDP declines along with the growth of the country and the share of industrial (secondary) sector will increase and finally the contribution of services (tertiary) sector will rapidly increase in the GDP of the nation.

Agriculture and allied sectors are critical in terms of employment and livelihood for small and marginal farmers, who dominate the agriculture ecosystem in India. To attain the Sustainable Development Goals (SDGs) of ending poverty and bringing in inclusive growth, activities related to agriculture need to be closely integrated with the SDG targets. Agriculture is critical for India’s food security.

The gross value added (GVA) in agriculture improved from -0.2 per cent in 2014-15 to 6.3 per cent in 2016-17, only to decelerate to 2.9 per cent in 2018-19. While the crops, livestock and forestry sector showed fluctuating growth rates over the period from 2014-15 to 2017-18, the fisheries sector has shown a rapid growth from 4.9 per cent in 2012-13 to 11.9 per cent in 2017-18. The average annual growth rate in real terms in agriculture and allied sectors has remained at around 2.88 per cent during 2014-15 to 2018-19. Gross capital formation (GCF) in agriculture as a percentage of GVA declined to 15.2 per cent in 2017-18 and the role of the public sector in GCF in agriculture has increased.

Share of agriculture sector in GVA

• The share of agriculture, forestry and fishing sector in GVA has seen a steady decrease over the years from 15.4 per cent in 2015-16 to 14.4 per cent in 2018-19.

• The decline was mainly due to a decline in the share of crops in GVA from 9.2 per cent in 2015-16 to 8.7 per cent in 2017-18.

• The share of fisheries in GVA has increased by 0.1 percentage point during the three years from 0.8 per cent in 2014-15 to 0.9 per cent in 2017-18.

• The share of livestock in GVA has remained around 4 per cent from 2012-13 to 2017-18. The share of forestry & logging was 1.2 per cent in 2017-18.

Industry and infrastructure

Being home to more than 130 crore people, India needs to build a robust industry with a buoyant and resilient infrastructure. The industry plays a decisive role in determining the overall growth of an economy. The industrial sector performance during 2018-19 has improved as compared to 2017-18.

• The industrial growth rate in terms of Index of Industrial Production (IIP) during 2018-19 stood at 3.6 per cent as compared to 4.4 per cent growth in 2017-18.

• The moderation in 2018-19 has been mainly due to subdued manufacturing activities in Q3 and Q4 due to slower credit flow to medium and small industries, reduced lending by NBFCs owing to liquidity crunch, tapering of domestic demand for key sectors such as automotive, pharmaceuticals, and machinery and equipment, volatility in international crude oil prices, etc.

• The eight core infrastructure supportive industries have achieved an overall growth rate of 4.3 per cent during 2018-19, similar to the increase achieved in 2017-18.

• The index of eight core industries measures the performance of coal, crude oil, natural gas, petroleum refinery products, fertilisers, steel, cement and electricity. The core industries comprise about 40.3 per cent weight in the IIP.

• The government has initiated a number of measures such as Start-up India, Ease of Doing Business, Make in India, FDI policy reforms to accelerate manufacturing growth.

• India has considerably improved its ranking to 77th position in 2018 among 190 countries assessed by the World Bank Doing Business Report, 2019, in which India has leapt 23 ranks over its rank of 100 in 2017.

• Road construction grew at 30 km per day in 2018-19 as compared to 12 km per day in 2014-15.

• Rail freight and passenger traffic grew by 5.33 per cent and 0.64 per cent, respectively, in 2018-19 as compared to 2017-18.

• Total telephone connections touched 118.34 crore in 2018-19.

• The installed capacity of electricity has increased from 3,44,002 MW in 2018 to 3,56,100 MW in 2019.

• Public-private partnerships are quintessential for addressing infrastructure gaps.

Services sector: The way forward

• The services sector accounts for 54 per cent of India’s GVA. Its growth rate moderated to 7.5 per cent in 2018-19 from 8.1 per cent in 2017-18.

• The segments that saw deceleration are tourism, trade, hotels, transport, communication and services related to broadcasting, public administration and defence. Financial, real estate and professional services category accelerated.

• An important finding is that India’s services sector does not generate jobs in proportion to its share in GVA. This contrasts with the international experience. India received 10.6 million foreign tourists in 2018-19 compared to 10.4 million in 2017-18. Foreign exchange earnings from tourism in India stood at $27.7 billion in 2018-19 compared to $28.7 billion in 2017-18.

• Many of the high-frequency indicators, such as bank credit to the services sector, decelerated in 2018-19. However, the IT-BPM industry grew by 8.4 per cent in 2017-18 to $167 billion and is estimated to have reached $181 billion in 2018-19.

• The performance of states shows that the share of services in total gross state value added (GSVA) was more than 50 per cent in 14 out of the 33 states and UTs. The share of services is particularly high in Chandigarh and Delhi with more than 80 per cent share, while Sikkim was at the bottom with 30.2 per cent share.

• In contrast, the services sector accounts for less than 40 per cent share of services in GSVA in states such as Gujarat, Uttarakhand, Madhya Pradesh and Chhattisgarh. Even states with a relatively low share of services, such as Haryana, Jharkhand, Odisha, Andhra Pradesh and Uttarakhand, have witnessed strong services sector growth in recent years.

• As per the UN National Accounts Statistics data, India ranked seventh in terms of GDP size and ninth in terms of services sector size in 2017. Note that India’s rank has since risen to sixth in terms of GDP, but the 2017 numbers have been used here for purposes of comparison.

• Notably, among these 15 countries, India has the second fastest growing services sector after China, registering a growth of 7.9 per cent both in 2017 and during 2007-17 in compound annual growth rate terms.

• India also ranks second after the UK in terms of services share in exports, with the share as high as seen in developed countries such as the US, France and Spain.

• In contrast, among the top 15 economies in terms of GDP and services GVA in 2017, India ranks the second lowest after China in terms of services share in GVA and ranks the lowest in terms of services share in employment.

• The share of services in employment is roughly the share of services GVA for other countries such as the US (79 per cent), China (56 per cent), Japan (71 per cent), Germany (72 per cent), UK (81 per cent), Brazil (69 per cent) and Mexico (61 per cent) in 2017, implying that the services sector expansion in recent decades has been unable to generate proportionate employment, especially in the formal sector.

Social infrastructure, employment and human development

As India is a developing economy with resource constraints, we have to prioritise and optimise expenditure on social infrastructure to promote sustainable and inclusive growth. It is critical at this juncture to focus on public investments in human capital and strengthen the delivery mechanisms of government interventions to ensure transparency and accountability. With India having the demographic advantage, improving educational standards, skilling the youth, enhancing job opportunities, reducing disease burden and empowering women will help in realising the potential of a buoyant economy in the future.

It has been estimated that demographic advantage in India is available for five decades from 2005-06 to 2055-56, longer than any other country in the world. This demographic advantage can be reaped only if education, skilling and employment opportunities are provided to the young population.

The government has been focusing on provisioning of assets such as schools, institutes of higher learning, hospitals, access to sanitation, water supply, road connectivity, affordable housing, skills and livelihood opportunities. This gains significance given the fact that India is home to the world’s youngest population as half of its population is below the age of 25.

Human Development Index (HDI)

The index was developed in 1990 by Pakistani economist Mahbub-ul-Haq and Indian economist Amartya Sen. The 1st Human Development Report (HDR-1990) published by the UN Development Programme (UNDP) focused on a new paradigm of development that puts people at the centre of development. The report added that human development is a process of “enlarging people’s choices”. The HDI is a comparative measure of life expectancy, literacy and standard of living for countries worldwide. We know that 28 years is a good enough time to assess how countries of the world, irrespective of the economic or political system they follow, have performed in promoting human development.

India’s HDI has improved significantly between 1990 and 2017. India’s HDI value increased from 0.427 to 0.640, but its position is still lowest among its peer countries (Asian and developing economies). As per the HDI, India is ranked 130 among 189 countries. Moreover, India also reflects inter-state disparities in regional and human development which are reflected by state-level HDIs.

The 2017 HDI scores show that Kerala, Goa, Himachal Pradesh and Punjab occupy the top spots, while Bihar, Uttar Pradesh and Madhya Pradesh are at the bottom of the rankings. The worst-performing states in the 1990s are now doing well in social parameters.

Sustainable Development Goals

The year 2015 witnessed two landmark events: the historic climate change agreement in Paris in December 2015 and the adoption of the Sustainable Development Goals (SDGs) in September 2015. The Paris Agreement aims at keeping the rise in global temperatures well below 2 degrees C, which will set the world towards a low-carbon, resilient and sustainable future, while the SDGs - which replace the Millennium Development Goals - set the development agenda for the next 15 years. India played a key role in shaping the SDGs.

In essence, the SDGs are a collection of 17 global goals and 169 targets set to be achieved by 2030, aimed at addressing global challenges. To measure India’s performance, NITI Aayog has developed the SDG India Index for all states and UTs. Based on this index, states are classified into four categories for each of the SDGs (except Goals 12, 13, 14 and 17)...

• Achiever - when SDG India Index score is equal to 100.

• Front Runner - when SDG India Index score is less than 100 but greater than or equal to 65.

• Performer - when SDG India Index score is less than 65 but greater than or equal to 50.

• Aspirant - when SDG India Index score is less than 50.

The 2018 SDG India index indicates that Kerala, Himachal Pradesh and Tamil Nadu are occupying the top spots and are in the front runner category, while Uttar Pradesh, Bihar and Assam are ranked lowest in the aspirant category.

Vital indicators of India’s social sector

• The maternal mortality ratio (MMR) of India has declined by 37 points from 167 per lakh live births in 2011-13 to 130 per lakh live births in 2014-16.

• Between 1990 and 2015, the MMR in India has declined by 77 per cent, as compared to a 44 per cent decline in the global average.

• As per the 2016 Sample Registration System report, the under-five mortality rate in India is 39 per 1,000 live births, The infant mortality rate is 34 per 1,000 live births and neonatal mortality rate is 24 per 1,000 live births.

• India being a developing economy, the percentage of GDP expended on education has remained stagnant at around 3 per cent, while that on health has hovered around 1 per cent during the past few years.

• Public health expenditure (Centre, states and local bodies) as a percentage of total health expenditure increased from 22.5 per cent in 2004-05 to 30.6 per cent in 2015-16.

Conclusion

In a nutshell, inclusiveness has been the cornerstone of India’s development agenda. Over the past few years, efforts in this direction have been accelerated by the government through the mantra of ‘Sabka Sath, Sabka Vikas’, further elaborated by ensuring ‘Sabka Vishwas’. Of course, the country urgently needs a framework that makes use of the two-way relationship between economic growth and the expansion of human capabilities. That is, the resources generated by growth should be spent on expanding health care, education and nutrition. The resultant expansion of human capabilities will in turn help drive economic growth.

Noushad Chengodan is Assistant Professor of Economics at PSMO College, Tirurangadi. The views expressed here are personal.