Published 15:42 IST, January 31st 2020
Economic Survey 2020 details 'slump in 2019' but predicts 'rebound to achieve $5 trillion'
A day before the Union Budget is presented, CEA Krishnamurthy Subramanian on Friday, presented the Economic Survey 2020 which spoke of how difficult 2019 was
A day before the Union Budget is presented, the Chief Economic Advisor Krishnamurthy Subramanian on Friday, presented the Economic Survey 2020 which spoke of how difficult 2019 was for the Indian economy. In the Survey's volume-2 - 'State of the Economy', it details how the 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 the expectation.
Look-back: Indian Economy 2019
Which factors pulled down India's growth?
Listing the factors which pulled down the Indian economy, the Economic Survey states that decline in real fixed investment due to sluggish demand was the main reason behind the declined growth in the 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. The contribution of industrial activities to GVA has also declined from 2009-14 to 2014-19 due to the slump in Munaufacturing sector and the slump in 'Agriculture and allied' areas due to relatively higher growth performance of tertiary sectors.
Here is how the economy performed (As explained in Economic Survey 2020):
- GVA and GDP growth : India too has witnessed a GDP slump to 4.8% as opposed to 6.2% which was the expectation.
- Inflation: The 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.
- Employment: Formal vs. Informal : Jump of around 2.62 crore new jobs over this period in the 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: The liquidity condition of helped sustaining an average 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 they apprehend Non-Performing assets (NPA).
- Sectoral developments : Manufacturing sector, which contributes more than 50 per cent of industrial GVA, has driven the decline. Share of agriculture and allied sectors in the total GVA of the country has declined from 2009-14 to 2014-19 mainly on account of relatively higher growth performance of tertiary sectors.
- Other factors: As described in Economic Survey 2019's 'virtuous cycle of growth' - increase in the rate of fixed investment accelerates the growth of GDP that in turn induces a higher growth in consumption. But the converse has occured with a declining rate of fixed investment decelerating GDP growth, resulting in decelarated growth of consumption. The 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.
What did the government do to boost growth?
In an attempt to boost demand, 2019-20 has witnessed significant easing of monetary policy with the 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 Non-Banking Financial Companies (NBFCs) sectors. Based on first Advance 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 the Economic Survey. It also advises the government to use its strong mandate to introfduce reforms to strongly rebound in 2020-21. The survey also estimated that based on India's growth with macroeconomic stability over the last five year (Avg GDP: 7.5%, Inflation: 4.5%), the economy can rebound to $5 trillion goal.
Updated 15:42 IST, January 31st 2020