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It is often said that the economic survey is an economist’s document; the budget is the politician’s plan. Survey 2019-20, tabled by Prof Krishnamurthy, had some interesting nuggets. These are pieced together here, without comment.
Thumbs up, market economy

An increase in economic openness, as a way to enhance wealth, is an idea ever since Adam Smith propounded the concept of the ‘invisible hand.’ It has worked wonders. There is enough proof that the liberalised sectors grew faster than closed ones, mainly because the optimum allocation of resources occurs when people can exercise freedom of choice. The survey provides thumbs up to India’s decision to dust the cobwebs of socialism and embrace the market economy.

Trust as a public good

The invisible hand needs the supporting hand of trust. Information asymmetry is essential. For instance, in the case of willful defaults pre-2014, the inability to access relevant borrower data was an issue. The government must promote transparency and effective enforcement using data and technology to enhance the public good. India’s $5-trillion aspiration depends on strengthening the invisible hand of markets and supporting it with the hand of trust.

Why did M-cap go up?

The rise in stock market capitalisation is been mainly due to an increase in the number of companies at the bourses rather than an increase in the size of incumbents. A positive way to look at is that there is greater competition within sectors! Mark it, every five years, one-third of Sensex firms exit the list, reflecting the continuous influx of new firms, products, and technologies into the economy. That’s a welcome sign.

Creating jobs via network products

India can become a significant hub for final assembly in ‘network products.’ In-network products, nations specialise in particular stages of the good’s production sequence. This specialisation is based on the country’s comparative advantage. By focusing on network products, total jobs attributed to exports will go up from 4.4 million in 2020 to 14.3 million in 2025 and 25.5 million in 2030. Of course, we can continue to be in select traditional labor-intensive industries.

Is ease of doing business a myth?

India has jumped 79 positions in World Bank’s Doing Business rankings, improving from 142 in 2014 to 63 in 2019. However, it continues to trail in parameters such as Ease of Starting Business (136), Registering Property (154), Paying Taxes (115) and Enforcing Contracts (163). Enforcing a contract in India takes as long as 1,445 days against 496 days in China. Any business in India involves a plethora of rules, regulations and burdensome documentation.

Banking in India

Public sector banks, with their 70 percent market share, have played a stellar role in India’s economy. However, they have been inefficient compared to their peers. In 2019, a rupee invested in PSBs, lost 23 paise; while a rupee invested in other banks gained 9.6 paise. The survey suggests stock options for bank employees with proportionate representation on boards. It asks banks to incorporate in its analysis tools such as Machine Learning, Artificial Intelligence, and Big Data.

Privatisation and Disinvestment

Both privatisation and disinvestment improve a firm’s productivity and has a multiplier effect on the other sectors in the economy. The survey quotes the recent approval for the strategic divestment of the government’s shareholding in Bharat Petroleum Corporation Limited (BPCL). It promptly led to a Rs 33,000 crore increase in the value of shareholders’ equity of BPCL, thereby an increase in national wealth!

India’s GDP is not overstated. Really?

Using econometric models, the survey studies whether the GDP has been overstated compared to the estimation methodology of 2011. It argues that there is no concrete evidence to suggest an incorrect estimation of India’s GDP. The models that over-estimate GDP growth by 2.7 per cent for India post-2011 also over-estimate GDP growth for 51 of the 95 other countries in the sample!


After 2015-16, the average household gained Rs 10,887 a year from the moderation in prices in the case of a vegetarian meal. Similarly, a family that consumes two non-vegetarian meals gained 11,787 per year. Using the annual earnings of an average industrial worker, the survey argues that the affordability of vegetarian meals improved 29 per cent from 2006-07 to 2019-20 while that for non- vegetarian meals improved by 18 percent. Touché.


The IMF, in its January 2020 update of World Economic Outlook, has projected India’s real GDP to grow at 5.8 percent in 2020-21. The World Bank also sees India’s real GDP growing at 5.8 percent in 2020-21. GDP growth of India should rebound in 2020-21 and more so on a low statistical base of 5 percent growth in 2019-20. India’s GDP growth is expected to grow by 6.0 to 6.5 percent in 2020-21, after analyzing both upside and downside risks.


As per a recent NSO survey, about 13.6 percent persons of age 3 to 35 years never went to school. The reasons for not enrolling were ‘not interested in education’ and ‘financial constraints.’ Among those who were enrolled, the dropout rate was as high as 10 percent at the primary level, 17.5 percent at upper primary/middle and 19.8 percent at the secondary level. This is because they preferred to work for survival.

Pro-Business versus Pro-Crony

The survey is in favor of a pro-business rather than a pro-crony environment. In a pro-business climate, firms compete on a level playing field, resource allocation is efficient and citizens’ welfare is maximised. In a pro-crony environment, some firms receive preferential treatment, resource allocation is inefficient and citizens’ welfare is not optimised. Pro-business policies lead to increased competition and correct market failures, while pro-crony policies hurt the market.

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