Economic survey 2019: Focus on investment and sharpening the edges: Financial express 5th July 2019

When analysing the implications of the Economic Survey it must be understood that it is a detailed view of the economy (where most information is already known) with a view provided independently by the CEA on how things look going ahead. The CEA’s views and ideology get embedded in the document, and as this is the first of Dr Subramanian, is insightful. While there are some prescriptions made, there is no reason to
believe that they will be considered by the government which has to balance the same with political and economic compulsions.

The Survey has pinned hopes on investment to be the driver of the economy through the ‘virtuous cycle route’ and believes that it forges links with consumption, exports, employment, etc. Hence, in a way, a concentrated effort on pushing up investment can achieve the other objectives too.

More importantly, the Survey believes that the worst is over and that there is reason to believe that the cycle will turn around this time. The reason is that capacity utilisation is up, NPAs of banks have peaked and being resolved and therefore both demand and supply conditions are favourable. Therefore, there are signs of green shoots.

The question really is whether these green shoots blossom or not. Presently, the picture on farming does not look comfortable with a delayed monsoon. Industrial output will have to be watched and the base effect can tend to depress numbers in the next few months.

The NBFC crisis is still in progress and while it is localised does still tend to send cautionary waves in the industry. Banks have recognised their NPAs, but would require capital and tread carefully in the coming years. Therefore, a clearer picture will emerge in the next 3-4 months.

The Survey has highlighted four major achievements in the last few years for which the government has to be commended. First is delivery which is very important because it has been the Achilles heel all along where government programmes falter due to inefficient delivery mechanism. Getting technology in for better delivery has been illustrated here in the NREGA.

Second has been infrastructure where relentless focus by the government through direct intervention in roads, railways and urban development has brought about significant improvement in these structures. On the other hand, proactive policies in terms of doing business have opened to the doors for private investment.

The third achievement has been federalism which is the cornerstone of the government development programme. This has actually helped in terms of better flow of funds as well as responsibilities which is finally also reflected in the combined fiscal numbers.

The last has been addressing the issue of corporate exits through the IBC which had been a stumbling block in the way of resolution of corporate insolvency. To this it adds that the removal of policy uncertainty has helped a lot to make things work better.

An interesting revelation is that the traditional MSMEs with less than 100 workers remain dwarfs all through their life and do not actually add to the employment chain or productivity. In fact, they actually destroy jobs as a number of them become non-operational. The suggestion here is to unshackle MSMEs and thereby enable them to grow. In this context all size-based incentives must have a sunset clause of less than ten years with necessary grand-fathering.

Hence, the report does read well and provides a path on what should be done. As the government is already on this road, there will probably be only incremental changes required to hone the system and make it work better.