Economic Survey 2020 details 'slump in 2019' but predicts 'rebound to achieve $5 trillion'

A day before Union Budget is presented, Chief Ecomic visor Krishnamurthy Subramanian on Friday, presented Ecomic Survey 2020 which spoke of how difficult 2019 was for Indian ecomy. In Survey's volume-2 - 'State of Ecomy', it details how world's growth shrunk to 2.9% in 2019 due to protectionist tendencies. Amidst this global slowdown, India too has witnessed a GDP slump to 4.8% as opposed to 6.2% which was expectation.

Look-back: Indian Ecomy 2019

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Which factors pulled down India's growth?

Listing factors which pulled down Indian ecomy, Ecomic Survey states that  decline in real fixed investment due to sluggish demand was main reason behind declined growth in second half (H2) of 2018-2019 and first half (H1) of 2019-2020. Moreover, imports contracted more sharply than exports while inflation rose from 3.3% to 7.4% by December 2019 due to temporary increase in food inflation - suggesting demand pressure. contribution of industrial activities to GVA has also declined from 2009-14 to 2014-19 due to slump in Munaufacturing sector and slump in 'Agriculture and allied' areas due to relatively higher growth performance of tertiary sectors.

Here is how ecomy performed (As explained in Ecomic Survey 2020):

• GVA and GDP growth : India too has witnessed a GDP slump to 4.8% as opposed to 6.2% which was expectation.

• Inflation: core-CPI and WPI inflation fell from 3.7 percent in H2 of 2018-19 to 2.1 per cent in H1 of 2019-20.

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• Employment: Formal vs. Informal : Jump of around 2.62 crore new jobs over this period in usual status category with 1.21 crore in rural areas and 1.39 crore in urban areas.
• Fiscal situation :  In 2019-20, Centre’s fiscal deficit was budgeted at ` 7.04 lakh crore (3.3 per cent of GDP), as compared to ` 6.49 lakh crore (3.4 per cent of GDP) in 2018-19.

• Monetary policy: liquidity condition of helped sustaining an aver daily net absorption soared from  Rs. 45.6 thousand crore in June 2019 to ` 256.4 thousand crore in December 2019.

• Credit growth : Witnessed a decline due to growing risk aversion of banks as y apprehend n-Performing assets (NPA).

• Sectoral developments : Manufacturing sector, which contributes more than 50 per cent of industrial GVA, has driven decline. Share of agriculture and allied sectors in total GVA of country has declined from 2009-14 to 2014-19 mainly on account of relatively higher growth performance of tertiary sectors.

• Or factors: As described in Ecomic Survey 2019's 'virtuous cycle of growth' - increase in rate of fixed investment accelerates growth of GDP that in turn induces a higher growth in consumption. But converse has occured with a declining rate of fixed investment decelerating GDP growth, resulting in decelarated growth of consumption. decline was also seen due to decline in fixed investment rate, drag of financial sector on private corporate investment, decline in household investment, delayed decline in private consumption.

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What did government do to boost growth?

 In an attempt to boost demand, 2019-20 has witnessed significant easing of monetary policy with repo rate having been cut by RBI by 110 basis points, implementation of  Insolvency and Bankruptcy Code (IBC) and easing of credit for stressed real estate and n-Banking Financial Companies (NBFCs) sectors. Based on first vance Estimates of India’s GDP growth for 2019-20 recorded at 5 per cent, an uptick in GDP growth is expected in H2 of 2019-20, states Ecomic Survey. It also vises government to use its strong mandate to introfduce reforms to strongly rebound in 2020-21. survey also estimated that based on  India's growth with macroecomic stability over last five year (Avg GDP: 7.5%, Inflation: 4.5%), ecomy can rebound to $5 trillion goal.

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