New Delhi: In July 2019, India’s chief economic adviser Krishnamurthy Subramanian released his first Economic Survey, a document that predicted 7% GDP growth for the country in FY’20 and called for ‘blue-sky’ thinking.The idea was that if the government and the country’s citizens adopted an uninhibited approach to problem-solving, everyone could achieve their goals.A year later, and India has stumbled on its journey to becoming a $5 trillion economy. GDP growth did not turn out at 7% as Subramanian’s team had predicted. It instead is set to clock in at a much lower 5%, on the back of falling consumption and muted private investment.Economic Survey 2020 acknowledges this, with Subramanian noting in a press conference on Friday afternoon that the slump has bottomed out. More importantly though, the document and believes the slump has bottomed out but places India’s slowdown in two contexts.The document situates the events of last year within the global economy’s slowdown – “world output growth estimated to grow at its slowest pace of 2.9% since the global financial crisis” – and in the framework of India’s financial sector “acting as a drag on the real sector”.Also read: At 6-6.5%, Economic Survey 2020 Projects Cautiously Optimistic Growth Figures for FY’21To the Survey’s credit, it dedicates a whole chapter to India’s shadow banking crisis, which happened on the Narendra Modi government’s watch, and creates a health index for the retail non-banking financial company (NBFC) sector. The methodology constructs an individual score for each NBFC.“Overall, it was found that the health score for the HFC [housing finance company] sector exhibited a declining trend post 2014. By the end of 2018-19, the health of the overall sector had worsened considerably. The health score of the Retail NBFC sector was consistently below par for the period 2014 till 2019. Further, the large retail-NBFCs had higher health scores but among the medium and small retail-NBFCs, the medium size retail-NBFCs had a lower health score for the entire period from March 2014 till March 2019,” the Survey notes.Credit: Economic Survey 2020.In a chapter on fiscal developments, the Survey concludes that the “urgent priority” of the Centre must be to “revive growth” and that as a result, it may consider relaxing the fiscal deficit targets; an assumption that has been speculated over the last few months.Modi government ruleThere are a number of chapters in the first volume though that look to put the Centre’s achievements over the last five years in context and explain how some recent problems affecting the economy really aren’t big issues or are related to legacy hotspots left behind by the UPA-governments.For instance, one full chapter goes into how the Modi government strongly believes in pro-business and not pro-crony policies. It quotes an equity index of politically-connected firms and how they outperformed the market from 2007 to 2010, but later underperformed after 2011, reflecting the “inefficiency and value destruction inherent in such firms”“Pro-crony policies as reflected in discretionary allocation of natural resources till 2011 led to rent-seeking by beneficiaries while competitive allocation of the same resources post 2014 have put an end to such rent extraction. Similarly crony lending that led to wilful default, wherein promoters have collectively siphoned off wealth from banks, led to losses that dwarf subsidies directed towards rural development,” the Survey notes.Also read: Goli Maro Economy Ko, I’m Going AbroadIt also comes up with novel ways of framing two governance agendas that received sharp criticism in the last year – ‘Start-Up India’ and the issue of high consumer inflation (especially in second half of 2019 calendar year).While the finance ministry had to devote some time dealing with the fall-out of the dreaded ‘angel tax’ last year – a controversy that drew criticism from even ardent supporters of this government, such as former Infosys CFO TV Mohandas Pai – the Economic Survey 2020 notes that the Centre’s focus on entrepreneurship has boosted the amount of new firms that are created every year.In Chapter 2, the Survey claims that while the number of new firms in India’s formal sector grew at a CAGR of 3.8% from 2006 to 2014, the growth rate for the next four years (until 2018) has 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…Entrepreneurship at the bottom of the administrative pyramid – a district – has a significant impact on wealth creation at the grassroot level. This impact of entrepreneurial activity on GDDP is maximal for the manufacturing and services sectors… birth of new firms is very heterogeneous across Indian districts and across sectors,” the chapter points out.Credit: Economic Survey 2020.On the issue of consumer inflation, which hit a nearly-five-year high of 7.35% in December 2019 on the back of soaring food prices, the Survey floats an idea it calls ‘thali-nomics’ or examining how the cost of a thali has changed in the last five years. Specifically, Subramanian and his team show that the absolute prices of a vegetarian ‘thali’ has decreased significantly since 2015-16, even though the price has increased somewhat in 2019 (due to higher consumer inflation).“… an average household of five individuals that eats two vegetarian Thalis a day gained around Rs 10,887 on average per year while a non-vegetarian household gained Rs 11,787, on average, per year. Using the annual earnings of an average industrial worker, it is found that affordability of vegetarian Thalis improved 29% from 2006-07 to 2019-20 while that for non-vegetarian Thalis improved by 18%.”Credit: Economic Survey 2020The Economic Survey links this, naturally, to lower inflation of each component of a thali from 2013-14 onwards, but also crucially juxtaposes it against the agricultural reforms that the Narendra Modi government introduced from 2015-16 onwards.“Many reform measures were introduced during the period of analysis to enhance the productivity of the agricultural sector as well as efficiency and effectiveness of agricultural markets for better and more transparent price discoveryThis is reflected in a slowdown in the prices of Thalis at the All-India level…,” the document notes.Who moved my GDP?Lastly, Subramanian and his team set out to counter concerns raised by section of India’s statistical community, the most prominent of which include his predecessor Arvind Subramanian, that India’s gross domestic product (GDP) figures are unreliable and likely overstated.In two working research papers released last year, Arvind Subramanian alleged that India’s real GDP growth was overestimated by 2.5 percentage points in the post-2011 period. These claims came at a difficult time for the government, which was already struggling with the perception that it had politically influenced the country’s statistical data.In the Economic Survey 2020, current CEA Krishnamurthy Subramanian provocatively titles Chapter 10 as ‘Is India’s GDP Growth Overestimated? No!’, the aim of which is pointedly described as “to estimate the inaccuracy if any in the GDP growth rate using the difference-indifference methodology as implemented in Subramanaian (2019) and Purnanandam (2019)”.The Survey, which examines the different issues that may have affected the way India calculates GDP, concludes ultimately that Arvind Subramanian’s concerns are unfounded.Its many conclusions include:1) Using a cross-country, generalised difference-in-difference model with fixed effects, the analysis demonstrate the lack of any concrete evidence in favour of a misestimated Indian GDP2)… No evidence of misestimation of India’s GDP growth is found.3) Indeed, the models that incorrectly overestimate GDP growth by over 2.77% for India post-2011 also mis-estimate GDP growth over the same time period for 51 other countries by any where between +4% to -4.6%, including UK by +1.6%, Germany by +1.0%, Singapore by -2.3%, South Africa by -1.2% and Belgium by -1.3%.However, when the models are estimated correctly by accounting for all unobserved differences among countries as well as the differential trends in GDP growth across countries, GDP growth for most of these 52 countries is neither over- or under-estimated. In sum, concerns of overestimation of India’s GDP are unfounded.
