The Economic Survey - one of the finance ministry’s flagship documents, which is usually presented in Parliament a day before the Union Budget - holistically provides comprehensive information about the Indian economy over the past year. It offers glimpses into the current state of the economy, reviews various economic policies and schemes and imparts insights into the economic outlook.

The two-volume Economic Survey 2019-20 covers various aspects of the Indian economy including challenges, remedial measures and prospects of the economy that may become part and parcel of Union Budget 2020-21.

The common belief is that 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. Interestingly, volume II demonstrates recent developments in all the major sectors of the economy and incorporates descriptive reviews of the economy with detailed statistical tables and data.

The Economic Survey 2019-20 was drafted under the guidance of Chief Economic Adviser Krishnamurthy V. Subramanian. Finance Minister Nirmala Sitharaman tabled the Economic Survey on January 31.

Theme of Economic Survey 2019-20

This year’s Economic Survey upholds a fabulous theme - “enable markets, promote pro-business policies and strengthen trust in the economy”. The Survey highlights the government’s attempt to craft a framework of policies that can foster wealth creation in India, which in turn, would set the economy firmly on an upward growth trajectory. It maintains a balanced optimistic stance and makes an attempt to put to rest any dubiousness about the benefits accruing from a market economy, both in economic thinking and policymaking.

The core element is that resource constraints force policymakers to focus on efficiency, with more output to be produced from given resources such as land, people and capital, or, the same output for less resource use.

The Survey taps into ancient texts such as Kautilys’s Arthashastra, Thiruvalluvar’s Thirukkural and treatise on modern economics such as Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations to emphasise upon the importance of “ethical wealth creation” as the root of economic activity and key to India becoming a $5 trillion economy by 2025.

Moreover, the Survey lays stress on the importance of bringing an openness in the market that leads to wealth creation, in turn, boosting economic activity through increased investment. According to the Survey, this “invisible hand of the market” supported by the hand of “trust” has led to such dominance in the past. The Survey provides contemporary evidence of these two factors coming into play when in the post economic liberalisation era, because of the induced creative destruction, the Indian economy returned to a high growth trajectory.

Thalinomics: The economics of food

Interestingly, the Survey reveals a new way of measuring household income and it is an attempt to figure out how much a meal costs in India. The price of a meal, both vegetarian and non-vegetarian, is modelled for 25 states / Union Territories, taking into account the price of cereals, vegetables, pulses and the cost of fuel. Analysing this data, the Survey found that since 2015-16, there has been a change in the dynamics of thali prices.

* The analysis manifests that after 2015-16, the average household gained Rs 10,887 on average per year from the moderation in prices in the case of a vegetarian thali.

* An average household that consumes two non-vegetarian thalis gained around Rs 11,787 on average per year during the same period.

* Using the annual earnings of an average industrial worker, the Survey found that the affordability of a vegetarian thali improved 29 per cent from 2006-07 to 2019-20, while that of a non-vegetarian thali improved by 18 per cent.

* Affordability of a thali in relation to a worker’s daily pay has improved over time, indicating improved welfare of the common person.

Aiming to be a $5 trillion economy

The Survey postulates that India’s aspiration to become a $5 trillion economy depends critically on strengthening the invisible hand of markets together with the hand of trust that can support markets. The invisible hand needs to be strengthened by promoting pro-business policies to provide equal opportunities for new entrants, enable fair competition and ease of doing business in the country, which attracts investments both from home and abroad. The government’s Start-up India campaign recognises entrepreneurship as an increasingly important strategy to fuel productivity growth and wealth creation in India.

Interestingly, the analysis employs comprehensive data on new firm creation in the formal sector across all the districts in India from the Ministry of Corporate Affairs (MCA)-21 database. Using the World Bank’s Data on Entrepreneurship, it is confirmed that India ranks third in the number of new firms created. The same data shows that new firm creation has gone up dramatically in India since 2014. While the number of new firms in the formal sector grew at a compound annual growth rate (CAGR) of 3.8 per cent from 2006 to 2014, the growth rate from 2014 to 2018 has been 12.2 per cent. As a result, from about 70,000 new firms created in 2014, the number has grown by about 80 per cent to about 1,24,000 in 2018.

The Survey strongly advocates to give importance to policies that enable ease of doing business and flexible labour regulation to enable new firm creation, especially in the manufacturing sector. As the manufacturing sector has the greatest potential to create jobs for youth, enhancing ease of doing business and implementing flexible labour laws can create the maximum jobs. The Survey has some suggestions for strengthening wealth creation in the country...

* Entrepreneurship at the grassroots as reflected in new firm creation in India’s districts; promote ‘pro-business’ policies that unleash the power of competitive markets to generate wealth as against ‘pro-crony’ policies that may favour incumbent private interests.

* Eliminate policies that undermine markets through government intervention, even where it is not necessary.

* Integrate Assemble in India into Make in India to focus on labour-intensive exports and thereby create jobs on a large scale.

* Efficiently scale up the banking sector to be proportionate to the size of the Indian economy and track the health of the shadow banking sector. Definitely, a large economy like India needs an efficient banking sector to support its growth.

* Use privatisation to foster efficiency. The Survey provides careful evidence that India’s GDP growth estimates can be trusted.

* Literacy, education and physical infrastructure are the other policy levers that district and state administrations must focus on to foster entrepreneurship and thereby job creation and wealth creation.

The state of the economy

In July 2019, the Union Budget 2019-20 had articulated Prime Minister Narendra Modi’s vision to make India a $5 trillion economy by 2024-25. However, the march towards this milestone has been questioned due to the weak growth of India’s GDP so far this year, on the back of a decline in world output. Yet, given India’s record of growth with macroeconomic stability over the past five years (annual average growth rate of 7.5 per cent and annual average inflation of 4.5 per cent), the economy is poised for a rebound towards the $5 trillion goal.

CEA Subramanian has stressed that India’s aspiration to become a $5 trillion economy depends critically on promoting a “pro-business” policy and moving away from a “pro-crony” policy.

In its update to the World Economic Outlook (WEO) in January, the International Monetary Fund (IMF) had revealed that global growth is projected to rise from an estimated 2.9 per cent in 2019 to 3.3 per cent in 2020 and 3.4 per cent in 2021. It is a downward revision of 0.1 percentage point for 2019 and 2020 and 0.2 for 2021 compared to those in the October WEO. Let us examine the following trends of economy at global and Indian perspectives…

* The WEO has estimated global output to grow at 2.9 per cent in 2019, declining from 3.6 per cent in 2018 and 3.8 per cent in 2017.

* The global output growth in 2019 is estimated to be the slowest since the global financial crisis of 2008, arising from a geographically broad-based decline in manufacturing activity and trade.

* The downward revision primarily reflects negative surprises to economic activity in a few emerging market economies, notably India, which led to a reassessment of growth prospects over the next two years.

* The growth of advanced economies has similarly declined from 2.5 per cent in 2017 to 2.2 per cent in 2018 and is estimated to further decline to 1.7 per cent in 2019.

* The WEO update of January has projected the Indian economy’s growth to increase to 5.8 per cent in 2020, expecting India to contribute significantly to an eventual pick-up in the growth of world output.

* Not surprisingly, trade tensions between China and the US have contributed to the decline of world output and trade.

* It is already observed earlier that India’s GDP growth also correlates with the growth of global output. That is, the deceleration in India’s GDP growth since 2017 has tracked the decline in world output.

* As per First Advance Estimates, growth in real GDP during 2019-20 is estimated at 5 per cent, as compared to the growth rate of 6.8 per cent in 2018-19.

* The nominal GDP is estimated at Rs 204.4 lakh crore in 2019-20 with a growth of 7.5 per cent over the provisional estimates of GDP (Rs 190.1 lakh crore) for 2018-19.

The size of the Indian economy

The WEO of October 2019 has estimated India’s economy to become the fifth largest in the world, as measured using GDP at current US dollar prices, moving past the UK and France. India is the fifth largest country in terms of size of the economy in absolute GDP numbers, and the third biggest in purchasing power parity (PPP) terms. The size of the economy is estimated at $2.9 trillion in 2019.

Quarter-wise analysis of GDP growth rate

Since 2011-12, India recorded its lowest quarterly GDP growth in the fourth quarter (Q4) of 2012-13. After 13 quarters, the economy achieved its highest quarterly growth of 9.4 per cent in Q1 of 2016-17. Again after 13 quarters, the economy has recorded a low growth of 4.5 per cent in Q2 of 2019-20.

Major fiscal developments

Everyone is talking about the fiscal roadmap of the central government. The fiscal policy focuses on attaining growth with macroeconomic stability. It mainly consists of public revenue, expenditure, debt and so on. Central government receipts can broadly be divided into non-debt and debt categories. Let us revisit important fiscal developments of the Indian economy in 2019-20…

* The Centre had pegged the fiscal deficit at 3.3 per cent of GDP in Union Budget 2019-20. The medium-term fiscal policy (MTFP) cum fiscal policy strategy statement in the Budget documents had projected the deficit at 3 per cent in 2020-21 and 2021-22.

* The MTFP had further projected that the Centre’s liabilities will come down to 48 per cent of GDP in 2019-20. The declining path of central government debt was expected to continue with debt reaching 46.2 per cent of GDP and 44.4 per cent of GDP in 2020-21 and 2021-22, respectively.

* This declining debt trajectory was expected based on a stable inflation regime and reduction in fiscal deficit. The ratio of revenue deficit to fiscal deficit broadly measures the extent of borrowings used for financing the current expenditure of the government.

Trends of tax and non-tax revenue

Undoubtedly, taxation is the primary source of income for the government. It includes tax revenues from income, profit, wealth and indirect taxes; now, it is largely in the form of GST. Non-tax revenue comprises mainly of interest receipts on loans to states and Union Territories, dividends and profits from public sector enterprises, including surplus of the Reserve Bank of India transferred to the government, receipts from services provided by the central government and external grants.

* Budget 2019-20 estimated the Gross Tax Revenue (GTR) to be Rs 24.61 lakh crore, which is 11.7 per cent of GDP. This builds into growth of 9.5 per cent over the revised estimates (RE) of 2018-19 and 18.3 per cent over 2018-19 PA.

* Direct taxes, comprising mainly of corporate and personal income tax, constitute around 54 per cent of GTR. These were envisaged to grow at 11.3 per cent relative to 2018-19 RE and 18.7 per cent relative to 2018-19 PA.

* On the other hand, indirect taxes were expected to grow at 7.3 per cent vis-a-vis 2018-19 RE and 20.6 per cent as against 2018-19 PA.

* Budget 2019-20 aimed to raise Rs 3.13 lakh crore of non-tax revenue, 1.5 per cent of GDP, 0.3 percentage points more than that in 2018-19 PA.

* Roughly, two-thirds of this increase in the BE is envisaged from dividends and profits, especially surplus transferred by the RBI. As against the 2019-20 BE of Rs 3.13 lakh crore for non-tax revenue, the actual realisation up to November 2019 has been 74.3 per cent of the BE.

Non-debt capital receipts

Non-debt capital receipts mainly consist of recovery of loans and advances, and disinvestment receipts. Over the past few years, the contribution of non-debt capital receipts have improved in the total pool of non-debt receipts. They have been pegged at Rs 1.20 lakh crore, 0.6 per cent of GDP, in 2019-20 BE owing to an envisaged growth of 6.3 per cent over 2018-19 PA.

* Receipts from the recovery of loans and advances have been declining over the years and are pegged at 12.4 per cent of non-debt capital receipts in 2019-20 BE.

* The major component of non-debt capital receipts is disinvestment receipts that accrue to the government on sale of public sector enterprises (including sale of strategic assets).

* The government aimed at mobilising Rs 1.05 lakh crore on account of disinvestment proceeds as per 2019-20 BE. During 2019-20 (up to November), the actual realisation of non-debt capital receipts has been Rs 0.29 lakh crore as against BE of Rs 1.20 lakh crore.

Disinvestment: The way forward

The Survey strongly argues for an aggressive disinvestment of central public sector enterprises (CPSEs). It said that post-privatisation CPSEs performed better. More clearly, the Survey manifests that privatisation results in higher profitability, efficiency, competitiveness and professionalism.

The finance minister had in her maiden Budget increased the divestment target from Rs 90,000 crore to Rs 1.05 lakh crore for 2019-20, focusing on consolidation of public sector units and strategic disinvestment.

As on December 31, 2019, the government had mobilised Rs 0.18 lakh crore using a variety of instruments like initial public offers, offer for sale and exchange-traded funds. The Survey says “key financial indicators such as net worth, net profit and return on assets of the privatised CPSEs, on average, have increased significantly in the post-privatisation period compared to peer firms. This improved performance holds true for each CPSE taken individually as well.” The disinvestment proceeds will help the Centre invest Rs 100 lakh crore over the next five years to boost India’s infrastructure.

An outlook of fiscal targets

* 2020-21 is expected to pose challenges on the fiscal front.

* In order to boost sluggish demand and consumer sentiment, counter-cyclical fiscal policy may have to be adopted to create additional fiscal headroom.

* During the first eight months of 2019-20, indirect tax collections have been muted. Therefore, revenue buoyancy of GST would be key to the resource position of both the central and state governments.

* On the expenditure side, rationalisation of subsidies, especially food subsidy, could be an important tool for expanding the headroom for fiscal manoeuvre.

* The government (Centre plus states) has been on a path of fiscal consolidation.

* Going forward, considering the urgent priority of the government to revive growth in the economy, the fiscal deficit target may have to be relaxed for the current year.

The external sector of the economy

For an open emerging market economy such as India, improvement in the balance of payments (BoP) position is critical. It ensures financing of essential imports such as crude oil and other such inputs that drive the manufacturing sector, which provides livelihood to crores of people. Contrary to this, an increase in the current account deficit (CAD) as a ratio to GDP worsens the BoP by drawing down on forex reserves or building the potential to worsen it by increasing the external debt burden. Yet, that has not been the case with the CAD to GDP ratio significantly improving from 2009-14 to 2014-19. The improvement has continued going forward with the CAD to GDP ratio lower in the first half of 2019-20 as compared to 2018-19.

Let us examine key developments of the Indian economy in this regard…

* India’s external sector gained further stability in the first half of 2019-20, witnessing improvement in the BoP position.

* India’s foreign reserves are comfortably placed at $461.2 billion as on January 10.

* The improvement in BoP was anchored by the narrowing of CAD from 2.1 per cent in 2018-19 to 1.5 per cent of GDP in H1 of 2019-20. The contraction of CAD has emanated from the easing of crude prices.

* Export growth remains subdued with external demand weakened by slowdown in global investment, output and heightened trade tensions, notwithstanding resilient service exports.

* Increase in service imports is inevitable with increasing FDI and Make in India programme.

* Petroleum products, precious stones, drug formulations & biologicals, gold and other precious metals continue to be top exported commodities, with fastest growth seen in drug formulations & biologicals in 2019-20 (April to November).

* Crude petroleum, gold, petroleum products, coal, coke & briquettes constitute top import items, with fastest growth seen in electronics in 2019-20 (April to November).

* India’s top five trading partners continue to be the US, China, UAE, Saudi Arabia and Hong Kong. Further improvement in BoP was contributed by the easing of external financial conditions, impressive FDI, rebounding of portfolio flows and receipt of robust remittances.

* Net FDI inflows have continued to be buoyant in 2019-20, attracting $24.4 billion in the first eight months, higher than the corresponding period of 2018-19.

* India’s net international investment position (NIIP) to GDP ratio has also improved, compared to 2018-19.

India’s external debt position

The World Bank’s International Debt Statistics shows that India’s external debt remains low as compared to the average external debt to GDP ratio of all developing countries (25.6 per cent). After a significant reduction in 2014-19 relative to 2009-14, India’s external debt to GDP ratio slightly increased by 0.3 per cent at the end of the first half of 2020 over its level at March 2019, primarily on account of an increase in commercial borrowings, non-resident deposits and short-term trade credit. External debt as at September 2019 remained low at 20.1 per cent of GDP.

Composition of India’s foreign trade

* Between 2011-12 and 2019-20, India’s exports to the US grew the highest.

* China continues to be the largest exporter to India, followed by the US, UAE and Saudi Arabia.

* In recent times, Hong Kong, South Korea and Singapore have emerged as significant exporters to India.

* India’s net services surplus has been steadily declining in relation to GDP. It financed two-thirds of merchandise deficit in 2016-17 before declining to less than half in the past couple of years.

* Under trade facilitation, India has improved its ranking from 143 in 2016 to 68 in 2019 under the indicator ‘Trading across Borders’, monitored by the World Bank in determining the overall ranking of around 190 countries in its Ease of Doing Business Report.

* Crude oil imports have a large presence in the import basket that correlates India’s total imports with crude prices.

* In the import basket of 2019-20 (April-November), crude petroleum had the largest share, followed by gold and petroleum products. However, between 2011-12 and 2019-20, imports of electronics grew the fastest from a negligible share to 3.6 per cent.

Monetary management and financial intermediation

Certainly, the RBI’s role is decisive in the socio-economic front to ensure price stability by regulating economic evils - inflation and deflation. The RBI is the apex institution of the monetary segment of the country. The monetary mechanism, headed by the RBI, is the way in which changes in the money supply affect the rest of the economy and thereby generate desirable outcomes in the system. In 2019-20, the monetary policy kit contains expansionary measures to speed up the recovery after an economic slowdown.

The repo rate was cut by 110 basis points in four consecutive Monetary Policy Committee (MPC) meetings in the financial year due to slower growth and lower inflation. However, it was kept unchanged in the fifth meeting held in December 2019. Liquidity conditions were tight for the initial two months of 2019-20, but subsequently it has remained comfortable. The financial flows to the economy, however, remained constrained as credit growth declined for both banks and non-banking financial companies (NBFCs).

An asset becomes non-performing when it ceases to generate income for the bank. A non-performing asset (NPA) is an asset whose repayment of principal and interest of their own has not been received for more than 90 days. The gross NPA ratio of scheduled commercial banks has remained unchanged at 9.3 per cent between March and September 2019 and increased slightly for NBFCs from 6.1 per cent to 6.3 per cent. Capital to risk-weighted asset ratio of scheduled commercial banks increased from 14.3 per cent to 15.1 per cent between March 2019 and September 2019.

The MPC is a committee of the RBI that is responsible for fixing the benchmark interest rate (repo rate) in India. The MPC’s decision was guided by low inflation and the need to strengthen domestic growth by spurring private investment in the economy.

Table 10 shows that monetary policy remained accommodative in 2019-20. The repo rate was cut in four out of five meetings held in 2019-20 (till December). The repo rate has been cut by 110 bps in 2019-20 so far.

Prices and inflation

* In India, inflation has been witnessing moderation since 2014. However, recently inflation has shown an uptick.

* Headline Consumer Price Index-Combined (CPI-C) inflation increased to 4.1 per cent in 2019-20 (April to December) as compared to 3.7 per cent in 2018-19 (April to December).

* Though Wholesale Price Index (WPI) inflation has seen an increase between 2015-16 and 2018-19, it fell from 4.7 per cent in 2018-19 (April to December) to 1.5 per cent during 2019-20 (April to December).

* The food index, which declined on an annual basis between 2017-18 and 2018-19, saw an uptick during the current financial year (April to December).

* Since July 2018, CPI-Urban inflation has been consistently higher than CPI-Rural inflation, which is in contrast to earlier trend where rural inflation was higher than urban inflation.

* During 2019-20 (April to December), food and beverages emerged as the main contributor to CPI-C inflation, with 54 per cent of the inflation during this period attributable to this group.

Broad sectors of the economy

The modern theory of development argues that the right path for the development of a country 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 service (tertiary) sector will rapidly increase in the GDP. The current chapter includes three broad sectors of the Indian economy - agriculture, industry and services. It is rightly arguing that the world of tomorrow belongs to the startups of today which, in fact, demands rapid industrialisation.

Agriculture and allied activities

The World Bank’s World Development Report 2008 shows that agricultural growth is at least twice as effective in reducing poverty compared to growth originating in non-agricultural sectors. Agriculture and its allied sectors remain an important sector because of its continued role in employment, income and most importantly in national food security. Its contribution to national income has gradually declined from 18.2 per cent in 2014-15 to 16.5 in 2019-20, reflecting the development process and the structural transformation taking place in the economy.

* With the implementation of the National Food Security Act from July 2013, the food subsidy bill has increased from Rs 1.13 lakh crore in 2014-15 to Rs 1.71 lakh crore in 2018-19. India’s food management should focus on rationalisation of food subsidy while addressing the challenges of food security, especially of the most vulnerable sections.

* The livestock sector has grown at a CAGR of 7.9 per cent during the past five years. The government has launched a National Animal Disease Control Programme for the control of foot & mouth disease and Brucellosis with a financial outlay of Rs 13,343 crore for five years from 2019 to 2024. This scheme envisages complete control of the disease by 2025 with vaccination and its eventual eradication by 2030.

* India continues to be the largest producer of milk in the world. Milk production was 187.7 million tonnes in 2018-19 and registered a growth rate of 6.5 per cent over the previous year. The per capita availability of milk has reached a level of 394 grams per day during 2018-19.

* Egg production in the country, which was 95,217 million in 2017-18, increased to 103,318 million in 2018-19.

* Fisheries remain an important source of food, nutrition, employment and income. The sector provides livelihood to about 16 million fishers and fish farmers at the primary level and almost twice the number along the value chain. The total fish production in the country stood at 13.42 million metric tonnes (provisional) during 2018-19.

* During the past six years ending 2017-18, the food processing industries sector has been growing at an average annual growth rate of around 5.06 per cent. The sector constituted as much as 8.83 per cent and 10.66 per cent of GVA in manufacturing and agriculture sector respectively in 2017-18 at 2011-12 prices.

* With the implementation of the National Food Security Act from July 2013, the food subsidy bill has increased from Rs 1,13,171.2 crore in 2014-15 to Rs 1,71,127.5 crore in 2018-19.

Industry and infrastructure

Industrial sector performance is critical to achieving the ambitious goal of making India a $5 trillion economy. The sector plays a decisive role in determining the overall growth of national output and employment through its backward and forward linkages with the other two sectors of the economy. It contributes close to 30 per cent of total gross value added (GVA). The sector is, however, vulnerable to several internal and external economic challenges that affect its overall performance.

* The industrial sector based on Index of Industrial Production (IIP) registered a growth of 0.6 per cent for 2019-20 (April to November) as compared to 5 per cent during 2018-19 (April to November).

* Growth of the manufacturing sector was 0.9 per cent during 2019-20 (April to November) as compared to 4.9 per cent during 2018-19 (April to November).

* Growth of the refinery products sector stood at -1.1 per cent during 2019-20 (April to November) as compared to 5.3 per cent during 2018-19 (April to November).

* The steel sector achieved a growth of 5.2 per cent during 2019-20 (April to November) as compared to 3.6 per cent during 2018-19 (April to November).

* The government has initiated several policies in various infrastructure sectors to enhance their capacity and output.

* The report of the Task Force on National Infrastructure Pipeline released on December 31, 2019, has projected total infrastructure investment of Rs 102 lakh crore during FY 2020-25.

* The IIP is a measure of industrial performance. It assigns a weight of 77.6 per cent to manufacturing, followed by 14.4 per cent to mining and 8 per cent to electricity. Overall, IIP growth has moderated to 3.8 per cent in 2018-19 compared to 4.4 per cent in 2017-18. During 2019-20 (April to November), it grew at 0.6 per cent as compared to 5.0 per cent in the corresponding period of the previous year.

Ease of doing business

CEA Subramanian has said that ease of doing business is key to entrepreneurship, innovation and wealth creation. Amid a gloomy economic environment, India has continued its upward march in the World Bank’s Ease of Doing Business rankings. With its rank climbing to 63 (among 190 economies) in 2020, the country has managed a quantum improvement in its relative position over just a four-year span from 130th place in 2016. India was ranked 77 in the 2019 report.

The government has taken several industry specific reform initiatives since 2014 that have significantly improved the overall business environment. To improve the ease of doing business, India has sharply cut down on the time taken to grant construction permits.

However, India lags in some aspects such as starting a business, registering property, paying taxes and enforcing contracts. That is, India has improved its rank in six out of 10 indicators and has moved closer to international best practices.

The ranking is based on 10 indicators which span the life-cycle of a business. The 10 parameters include getting electricity, paying taxes, trading across borders, enforcing contracts, starting a business, registering property, resolving insolvency, giving out construction permits, getting credit and protecting minority investors.

National Infrastructure Pipeline

Investment in infrastructure is necessary for growth. To achieve a GDP of $5 trillion by 2024-25, India needs to spend about $1.4 trillion (Rs 100 lakh crore) over these years on infrastructure. To implement an infrastructure programme of this scale, it is important that projects are adequately prepared and launched. To draw up the National Infrastructure Pipeline (NIP) for each year from 2019-20 to 2024-25, an inter-ministerial task force was set up in September 2019 under the chairmanship of secretary (DEA), Ministry of Finance.

The NIP is expected to enable well-prepared infrastructure projects that will create jobs, improve ease of living and provide equitable access to infrastructure for all, thereby making growth more inclusive. The NIP has projected total infrastructure investment of Rs 102 lakh crore in 2020-25. Energy (24 per cent), roads (19 per cent), urban (16 per cent), and railways (13 per cent) amount to over 70 per cent of the projected capital expenditure.

As per the NIP, the central government (39 per cent) and state government (39 per cent) are expected to have equal share in funding of the projects followed by the private sector (22 per cent). It is expected that the private sector’s share may increase to 30 per cent by 2025. Out of the total expected capital expenditure of Rs 102 lakh crore, projects worth Rs 42.7 lakh crore (42 per cent) are under implementation, projects worth Rs 32.7 lakh crore (32 per cent) are in conceptualisation stage and the rest are under development.

Services sector - a key economic driver

The services sector’s significance in the Indian economy has continued to increase, with the sector now accounting for around 55 per cent of total size of the economy and GVA growth, two-thirds of total FDI inflows into India and about 38 per cent of total exports. The share of the services sector now exceeds 50 per cent of Gross State Value Added (GSVA) in 15 out of 33 states and UTs, with this share more than 80 per cent in Delhi and Chandigarh.

* Moreover, gross FDI equity inflows into the services sector have registered a strong recovery and services exports have maintained their momentum during April-September 2019.

* Services exports have outperformed goods exports in recent years, due to which India’s share in the world’s commercial services exports has risen steadily over the past decade to reach 3.5 per cent in 2018, twice the share in world’s merchandise exports at 1.7 per cent.

* Services sector performance at the state and UT level shows that the services sector now accounts for more than 50 per cent of the GSVA in 15 out of 33 states and UTs.

* In eight states, the services sector accounts for more than 60 per cent of GSVA.

* Chandigarh and Delhi stand out with a particularly high share of services in GSVA of more than 80 per cent, while Sikkim’s share remains the lowest at 26.8 per cent.

* Even states with relatively lower share of services in GSVA such as Jharkhand, Odisha, Andhra Pradesh, Uttarakhand, Gujarat, Arunachal Pradesh and Goa have witnessed strong services sector growth in recent years.

Social infrastructure and human development

The IMF’s Asia Pacific Regional Economic Outlook observes that demographic dividend can add about 2 per cent to the annual rate of economic growth with the right policy mix. China and India remain the two largest populated countries in the world, each with more than 1 billion people, representing 19 per cent and 18 per cent of the world’s population, respectively. But by 2022, India’s population is expected to surpass that of China.

In its Human Development Report (1997), the UNDP states that “economic growth contributes most to poverty reduction when it expands the employment, productivity and wages of poor people and when public resources are channelled to promoting human development. A virtuous cycle of economic growth and human development arises when growth is labour using and employment generating and when human skills and health improve rapidly.”

Considering India’s demographic advantage of a large young population in the productive age group, improvements in social sectors such as education, health care, water supply and sanitation leaves a profound impact on the quality of life of the people as well as to the productivity of the economy.

Trends in social sector expenditure

* Expenditure on social services (education, health and others) by the Centre and states as a proportion of GDP increased by 1.5 percentage points from 6.2 to 7.7 per cent from 2014-15 to 2019-20 (BE).

* An increase was witnessed across all social sectors during this period. For education, it increased from 2.8 per cent in 2014-15 to 3.1 per cent in 2019-20, and for health from 1.2 to 1.6 per cent.

* The share of expenditure on social services out of total budgetary expenditure increased to 26 per cent in 2019-20 (BE) from 23.4 per cent in 2014-15.

Human development

The human development index (HDI) was developed in 1990 by Pakistani economist Mahbub-ul-Haq and Indian economist Amartya Sen. The first Human Development Report (HDR 1990) was published by the UN Development Programme (UNDP) and it 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”.

* India’s rank in the HDI improved to 129 in 2018 from 130 in 2017, out of a total of 189 countries. The value of HDI for India reached 0.647 in 2018.

* With 1.34 per cent average annual HDI growth, India is among the fastest improving countries, and ahead of China (0.95), South Africa (0.78), Russia (0.69) and Brazil (0.59).

* To sustain this momentum and further accelerate it, the role of the public sector in delivery of social services such as education and health is critical.

Health for all

The introduction of the National Health Policy, 2017, for universal access to good quality health care services, and the subsequent launch of Ayushman Bharat, has two components…

* Health & Wellness Centres to provide comprehensive primary health care.

* The Pradhan Mantri Jan Arogya Yojana, which provides health cover up to Rs 5 lakh per family per year to 10.74 crore poor and vulnerable families for secondary and tertiary hospitalisation, speaks about the government’s efforts for a healthy India.

The focus of health care rests on four important pillars - preventive health care, providing affordable health care, building medical infrastructure and mission mode interventions for maternal health, child health and to combat communicable and noncommunicable diseases. The government is now focused on addressing the epidemiological transition from communicable diseases to noncommunicable diseases.

Concluding remarks

Policymakers must direct all economic priorities to focus on maximum employment creation, which is critical to meet the “potentialities of young labour force” and will automatically yield a near double-digit rate of GDP growth for the next decade and an average of 7-8 per cent for the next three decades. Let us conclude the analyses with the words of US economist and Nobel laureate Paul Krugman: “The first global economy, towards the end of the 19th century, with its steam engines, telegraph and hectic commerce and colonies, saw the rich countries grow faster than poor ones. A snapshot of the second global economy, available in the last decade of the 20th century and the first decade of the 21st, shows a remarkably different picture. Poorer countries grew much faster, led, of course, by China and later, India.”     

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

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