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Explaining: Economic Survey 2019-20

Economic Survey 2019-20

Approx Read Time: 25 minutes

What is the Economic Survey?

  • The Economic Survey is a report the government presents on the state of the economy in the past one year, the key challenges it anticipates, and their possible solutions.
  • The document is prepared by the Economic Division of the Department of Economic Affairs (DEA) under the guidance of the Chief Economic Advisor.
  • Once prepared, the Survey is approved by the Finance Minister.
  • The first Economic Survey was presented in 1950-51. Until 1964, the document would be presented along with the Budget.


  • The Economic Survey is a crucial document as it provides a detailed, official version of the government’s take on the country’s economic condition.
  • It can also be used to highlight some key concerns or areas of focus — for example, in 2018, the survey presented by the then CEA Arvind Subramanian was pink in colour, to stress on gender equality.

Is it binding on the government?

  • The government is not constitutionally bound to present the Economic Survey or to follow the recommendations that are made in it.
  • If the government so chooses, it can reject all suggestions laid out in the document.
  • But while the Centre is not obliged to present the Survey at all, it is tabled because of the significance it holds.

Economic Survey on various sectors/themes

State of the Economy:

  • The survey acknowledges the slowdown in the economy, which it attributes to the financial sector dragging down the real economy.

Expects Growth revival:

  • India’s economic growth is expected to “strongly rebound” to 6-6.5% in 2020-21 from 5% estimated in the current fiscal.
  • The Survey said there are tentative signs of bottoming out of slowdown in manufacturing activity and global trade, which will have a positive impact on growth in the next fiscal.
  • The Survey expects uptick in second half of 2019-20, which will be mainly due to following factors:
    • Picking up of Nifty India Consumption Index for the first time this year.
    • An upbeat secondary market,
    • Higher FDI flows,
    • Build-up of demand pressure,
    • Positive outlook for rural consumption,
    • Rebound of industrial activity,
    • Steady improvement in manufacturing,
    • Growth in merchandise exports,
    • Higher build-up of foreign exchange reserves, and
    • Positive growth rate of GST revenue collection.
  • For growth revival: The Economic Survey advocated a counter-cyclical fiscal policy, i.e. giving spending a boost to spur demand and revive growth.
Economic Survey 2019-20
Economic Survey 2019-20

Fiscal Deficit:

  • Considering the urgent priority of the government to revive growth in the economy, the survey calls for fiscal deficit target to be relaxed for the current year.
For employment generation:
  • The survey emphasizes on policies that promote ease of doing business and flexible labour regulations, and foster entrepreneurial activity, especially in the manufacturing sector.
  • ‘Assemble in India’ for the world should be integrated with ‘Make in India’ to raise India’s export market share to about 3.5% by 2025 and 6% by 2030.
  • In the process, India would be able to create about 4 crore jobs by 2025 and about 8 crore jobs by 2030.
  • Rationalization of non-committed revenue expenditure: The survey suggested on realization of non-committed revenue expenditure like subsidies but warned against cutting capital expenditure.

Wealth Creation:

  • The economic survey underlined the importance of wealth creation and highlighted the need to push towards increasing the number of wealth creators in the Indian economy.
  • The Survey states that to achieve the India’s goal of becoming a $5-trillion economy, the invisible hand of markets will need the support of “the hand of trust”. In other words, regulation and rules in the economy should be such that they make it easy to do business but not turn into crony capitalism.
  • Strengthening of Invisible hands can be done by promoting pro-business policies like:
    1. Provide equal opportunities for new entrants, enable fair competition and ease doing business,
    2. Eliminate policies that unnecessarily undermine markets through government intervention,
    3. Enable trade for job creation,
    4. Efficiently scale up the banking sector to be proportionate to the size of the Indian economy.
  • How can this be done?
    1. Empowering transparency.
    2. Effective enforcement using data and technology to enhance this public good.
    3. Increase the opportunities for new entrants.
    4. Allocate resources in a way to ensure their optimal use.
    5. By integrating “Assemble in India for the world” into Make in India, India can create 4 crore well-paid jobs by 2025 and 8 crores by 2030.
NOTE: a 10% increase in new firms in a district yields a 1.8% increase in Gross Domestic District Product (GDDP)

Ease of doing Business:

Economic Survey 2019-20
Economic Survey 2019-20
Economic Survey 2019-20
Economic Survey 2019-20
  • Setting up and operating services or manufacturing business in India faces a maze of laws, rules and regulations.
  • The survey highlighted that is easier to procure a gun license in the national capital than apply for a restaurant. The Delhi Police asks for 45 documents before giving a clearance to open an eatery as against only 19 to buy a gun.
  • On the other hand, China and Singapore require only four licenses to open a restaurant.
  • India needs to work on improving the ease of doing business, especially the ease of starting business, registering property, paying taxes, or enforcing contracts.


Assemble in India:
  • The Survey suggests integrating ‘Make in India’ with an ‘assemble for the world’ plan.
  • India should follow the Chinese model of becoming an assembling hub for the world for ‘network products’ such as computers, electronics, and road vehicles to raise its share in the world export market.
  • This can raise its export market share to 3.5 % by 2025 and 6% by 2030.
  • Such a strategy could help to create four crore well-paid jobs by 2025 and 8 crore by 2030.
Economic Survey 2019-20
Economic Survey 2019-20
Specialization on a large scale in labor-intensive sectors like network products:
  • Apart from reorienting itself as the assembling hub of the world like China, India should also focus on traditionally labor-intensive sectors such as textiles, clothing, footwear, and toys.
  • India must focus on a group of industries, referred to as “network products”, where production processes are globally fragmented and controlled by leading Multi-National Enterprises (MNEs) within their “producer-driven” global production networks.
  • If India wants to become a major exporter, it should specialize more in the areas of its comparative advantage and achieve a significant quantity expansion.
  • Similarly, India could also use its big workforce to penetrate the market of traditional rich countries, which tend to be more quality and brand conscious.

About: Free trade agreement

  • With a number of free trade agreements signed by India in recent years, there has been overall trade surplus per year in the country.
  • Separately, the survey pointed out that it was easier to import goods into the country than export, given the complexities involved and poor logistics network.
Economic Survey 2019-20
Economic Survey 2019-20

Banking Sector:

  • The survey described Indian banks as suffering ‘dwarfism’, with only one bank (SBI) in the top 100, while six are needed for an economy like India’s size.
  • Issues:
    1. Lag in performance:
      • Even though public sector banks are the dominant players in the banking sector, they lag considerably in performance metrics when compared to their private sector banks.
      • In 2019, every rupee of taxpayer money invested in public sector banks, on average, lost 23 paise. While, every rupee of investor money invested in ‘New Private Banks’ (NPBs) (banks licensed after India’s 1991 liberalization) on average gained 9.6 paise.
      • The credit growth among PSBs has declined significantly since 2013 and has also been anaemic since 2016 which has impacted economic growth.
    2. Less operating freedom:
      • The PSBs enjoy less strategic and operating freedom as compared to private banks.
      • The majority ownership by the government also subjects public sector bank officers to scrutiny of their decisions by the Central Vigilance Commission and the Comptroller and Auditor General.
    3. Wary of risks:
      • With no real restrictions on what can be investigated and under what circumstances, officers of state-run banks are wary of taking risks in lending or in renegotiating bad debt, due to fears of harassment under the veil of vigilance investigations.
    4. Small savings hold up interest rate reduction:
      • The Survey indicated that small savings rates like the public provident fund (PPF) are preventing rate cuts by the RBI from being passed on to the banking system. Until rates on small savings fall, term deposit rates are unlikely to decline.
      • Although there is a formula where small savings rates are reset by the government every quarter, the revision has not been very effective.
      • Even though RBI’s monetary easing and release of liquidity have had some impact on short term interest rates. However, this impulse is not feeding through to longer-term maturities.


  • The Survey called for improving governance in public sector banks and the need for more disclosure of information to build trust.
  • PSBs should be asked to share corporate data among themselves through a GSTN like entity (PSB network) and undertake analytics of the data using fintech.
  • PSB employees should hold stake through Employee Stock Option Scheme across all levels. Part-ownership of PSBs by employees will reduce agency problems. This is because employees who own shares are incentivized to increase market value of equity.
  • The Survey called for steps that need to be taken to make them more efficient.

Non-Banking Financial Sector:

Health Score:
  • The Economic Survey has unveiled an early-warning system, ‘Health Score’, that could read signs of impending rollover risk problems in the non-banking finance sector.
  • The Health Score is based on the rollover risk, which includes asset liability management risk, interconnectedness risk, and financial and operating resilience of an NBFC.
  • The Health Score for the HFC sector exhibited a declining trend after 2014. By the end of 2018-19, the health of the overall sector had worsened considerably.
Economic Survey 2019-20
Economic Survey 2019-20
  • It can serve the critical role of predicting refinancing-related stress faced by the financial firms in advance.
  • It can serve as an important monitoring mechanism to prevent such problems in future.
  • The Health Score can also be used by policymakers to allocate scarce capital to stressed NBFCs optimally to alleviate a liquidity crisis.
  • It can be used to set prudential thresholds on the extent of wholesale funding that can be permitted for firms in the shadow banking system.
  • Regulators can use the Health Score as a basis for optimally directing capital infusions to deserving NBFCs to ensure efficient allocation of scarce capital.
  • The Health Score can be used as a valuable tool to introduce corrective measures to address unfavorable financial trends in a timely manner.


  • A key theme the Economic Survey emphasizes across chapters is the importance of wealth creation which, it says, is better achieved through liberalization of the economy and promotion of the private sector.
  • Quoting extensively from Kautilya’s Arthashastra, Adam Smith’s the Wealth of the Nations, Tamil saint Thiruvalluvar’s Thirukural – along with evidence-based analysis – many chapters in the Survey stress the need for wealth creation and greater participation of the private sector to achieve this objective.
  • It states 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.
  • Invisible hand was a concept advocated by economist Smith who argued that private players working in their self-interest produce favorable economic results.
  • In the case of state-owned banks, while the Survey does not advocate privatisation, it suggests granting stock options to bank employees, on the lines of private banks, to motivate them, as well as better use of data analytics and fintech platforms to improve bank productivity.

Past examples of privatization and their impact:

  • The Survey cites sector after sector – cement, steel, roads, ports, banking and mutual funds – where entry of the private sector led to exponential gains, especially when compared with sectors which remained under government control – such as railways, coal, PSU banks – which fared poorly over the years.
  • Another analysis in the Survey highlights the gains achieved from strategic sales between 1999-2000 to 2003-04 in key companies that were privatized, Balco, Maruti, Hindustan Zinc, Tata Communications, Modern Food India, among others.
  • Analysis shows that these privatized CPSEs, on an average, performed better post-privatization than their peers in terms of their net worth, net profit, return on assets (ROA), return on equity (RoE), gross revenue, net profit margin, sales growth and gross profit per employee.
  • The Survey also highlights the case of Bharat Petroleum Corporation Limited (BPCL) where the announcement of privatization itself led to an increase in shareholder value by Rs 33,000 crore compared to its peer Hindustan Petroleum Corporation Limited, in which the government sold its entire stake to another state-owned player ONGC.
  • HPCL shares have remained largely flat with no privatization, while BPCL stock almost doubled in value just on announcement.

Path to privatization:

  • It states that aggressive disinvestment, preferably through the route of strategic sale, should be utilized to bring in higher profitability, promote efficiency, increase competitiveness and to promote professionalism in management in state-run firms.
  • The Survey argues for the setting up of a holding company structure — on the lines of Singapore government-owned Temasek Holdings — to carry out stake sale in central public sector enterprises (CPSEs). The government can transfer its stake in the listed CPSEs to this separate corporate entity.
  • This entity would be managed by an independent board and would be mandated to divest the government stake over a period of time, which would help unlock value in 264 CPSEs.
  • This will lend professionalism and autonomy to the disinvestment programme which, in turn, would improve the economic performance of the CPSEs.
  • It would also help to unlock capital for use elsewhere, especially in public infrastructure like roads, power transmission lines, sewage systems, irrigation systems, railways and urban infrastructure.

Workforce and Firms:

Creation of new firms:
  • According to the Economic Survey, India currently ranks third globally in the number of new firms created but it has lower rates of formal entrepreneurship on a per-capita basis compared to other countries.
  • As per the Survey, new firm creation had gone up dramatically since 2014. While the number of new firms in the formal sector grew at a cumulative annual growth rate of 3.8% from 2006 to 2014, the growth rate from 2014 to 2018 had been 12.2%.
  • As a result, from about 70,000 new firms created in 2014, the number has grown by about 80% to about 1,24,000 new firms in 2018.
Comparison with other countries:
  • Between the 10-year period from 2006 to 2016, the mean number of new firms registered per year per 1,000 workers was 0.10.
  • In contrast, the mean entrepreneurial intensity for the U.K. and the U.S. was 12.22 and 12.12, respectively.
  • The Survey also pointed out that in contrast to the other countries, a large number of India’s enterprises operate in the informal economy which was not captured in the data.
Miscellaneous findings on firm creation:
  • The data showed that new firm creation in services sector (at around 85,000) was significantly higher than that in manufacturing (a little less than 15,000), infrastructure (about 5,000) or agriculture (less than 5,000).
  • Further, the Survey highlighted that a 10% increase in registration of new firms in a district yields a 1.8% increase in GDDP (gross district domestic product).
  • Thus, entrepreneurship at the bottom of the administrative pyramid — a district — has a significant impact on wealth creation at the grassroots level.
Declining female Work Force:
  • While the number of women employed in salaried jobs in the country has increased by 8 % (from 13 % in 2011-12 to 21 % in 2017- 18) with the addition of 0.71 crore new jobs for female workers, the overall participation of women in India’s workforce is on the decline.
  • According to NSO-EUS and PLFS estimates, female labour force participation rate for productive age-group 15- 59 years shows a declining trend in the country. The female labour force participation declined by 7.8 percentage points from 33.1 % in 2011-12 to 25.3 % in 2017-18.
  • Though female labour force participation rate is higher in rural areas than in urban ones, the rate of decline has also been sharper in rural areas compared to urban areas. In urban areas, female labour force participation more or less remained constant.
  • The decline of women in the rural workforce has been attributed, among other things, to the decline in subsidiary activities, from 25 % in 2004-5 to 5.7 % in 2017-18.
Impact of education on female labour force participation:
  • Expressing concern over declining female labour force participation ratio, the Survey says, continuing education past school level dramatically improves the prospects of women to be employed.
  • More than half the women who never get past school end up doing full-time house work. But nearly 95% of those who study till graduation or get a diploma escape the drudgery of domestic work.
  • Failure to acquire skills or attain the desired level of education keeps them out of the job market and ties them down to household chores for all their productive years.
  • An analysis of the Periodic Labour Force Survey (PLFS) 2017-18 shows that for the productive age group (15-59 years), only 5.3% of highly educated women (graduate and above) are engaged in full-time domestic duties, while the figure for those educated up to secondary level is 54.6%.
  • Worryingly, among women aged 30-59 who dropped out of school, the proportion of those doing domestic duties increased from 46% in 2004-05 to 65.4% in 2017-18.
  • In the age group of 15-59 years, about 60% of women were outside the labour market, stuck to domestic duties, compared to less than 1% of males.
  • Proportion of youth in educational institutions has risen faster from 23% in 2004-05 to 38.5% in 2017-18 for young males, while for young women the proportion almost doubled from 15.8% in 2004-05 to 30.3% in 2017-18.
Miscellaneous data on female workforce:
  • The number of self-employed women in the country has decreased from 7.2 crore in 2011-12 to 5.54 crore in 2017-18.
  • Women casual labourers have decreased from 3.97 crore in 2011-12 to 2.86 crore, while the share of women employers has remained constant at 0.6 % over the years.

Way Ahead:

  • The Survey states that enhancing ease of doing business and implementing flexible labour laws in job-creating sectors, such as manufacturing, can create the maximum number of jobs in districts and thereby, in the States.
  • Further, literacy, education and physical infrastructure are the other policy levers that district and State administrations must focus upon to foster entrepreneurship and thereby, job creation and wealth creation.

Essential Commodities Act:

Anachronistic legislations and Interventionist government policies:
  • The Economic Survey has severely criticized the Essential Commodities Act (ECA) and other “anachronistic legislations” and interventionist government policies, including drug price control, grain procurement and farm loan waivers.
  • Government intervention in several areas of the Indian economy has not only been ineffective in resolving the issues it was targeting in several instances, but has sometimes also created more problems.
Essential Commodities Act (ECA):
  • The mandate of the Essential Commodities Act (ECA), 1955, is to ensure affordability of essential commodities for the poor by restricting hoarding, but it has created market distortions that have prevented the efficient development of agricultural markets.
  • The Act does not distinguish between hoarders and firms that “genuinely” need to hold on to these stocks due to the nature of their operations.
  • These stock limits have also had “limited” success in containing volatility of prices of these commodities.
  • For instance, stock limits imposed in September 2019 on onions to prevent hoarding by traders had no effect in controlling the rise in their prices and instead had led to a sharp increase in the volatility of their prices since November.
  • The lower stock limits must have led the traders and wholesalers to offload most of the kharif crop in October itself.
  • The Survey argued that if the government had not intervened, traders would have stored part of their produce to ensure smooth availability of the commodity at stable prices throughout the year.
Impact of ECA:
  • In the long term, the Act disincentivizes development of storage infrastructure thereby leading to increased volatility in prices following production/consumption shocks—the opposite of what it was intended for.
  • The Act has also reduced the effectiveness of free trade and flow of commodities from areas with surplus stock to markets with higher demand.
  • The Survey added that despite 76,000 raids conducted under the ECA in 2019, the conviction rate was abysmally low. This goes on to show that the ECA only seems to enable rent-seeking and harassment.

Also Read: Budget 2020-21 Summary

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