PIB – February 1 , 2020


General Studies-III

Topic- Government Budgeting

Key Highlights of Economic Survey 2019-20

The Union Minister for Finance & Corporate Affairs, presented the Economic Survey 2019-20 in the Parliament today.

The Key Highlights of the Economic Survey 2019-20 are as follows:

Wealth Creation: The Invisible Hand Supported by the Hand of Trust

  • India’s dominance as global economic power for three-fourths of economic history manifests by design.
  • Kautilya’s Arthashastra postulates the role of prices in an economy (Spengler, 1971).
  • Historically, Indian economy relied on the invisible hand of the market with the support of the hand of trust:
  • Invisible hand of the market reflected in openness in economic transactions.
  • Hand of trust appealed to ethical and philosophical dimensions.
  • Post-liberalisation, Indian economy supports both pillars of the economic model advocated in our traditional thinking.
  • Survey illustrates enormous benefits accruing from enabling the invisible hand of the market.
  • Exponential rise in India’s GDP and GDP per capita post-liberalisation coincides with wealth generation.
  • Survey shows that the liberalized sectors grew significantly faster than the closed ones.
  • Need for the hand of trust to complement the invisible hand, illustrated by financial sector performance during 2011-13.
  • Survey posits that India’s aspiration to become a $5 trillion economy depends critically on:
  • Strengthening the invisible hand of the market.
  • Supporting it with the hand of trust.
  • Strengthening the invisible hand by promoting pro-business policies to:
  • Provide equal opportunities for new entrants.
  • Enable fair competition and ease doing business.
  • Eliminate policies unnecessarily undermining markets through government intervention.
  • Enable trade for job creation.
  • Efficiently scale up the banking sector.
  • Introducing the idea of trust as a public good, which gets enhanced with greater use.
  • Survey suggests that policies must empower transparency and effective enforcement using data and technology.

India’s Economic Performance in 2019-20

  • India’s GDP growth moderated to 4.8 % in H1 of 2019-20, amidst a weak environment for global manufacturing, trade and demand.
  • Real consumption growth has recovered in Q2 of 2019-20, cushioned by a significant growth in government final consumption.
  • Growth for ‘Agriculture and allied activities’ and ‘Public administration, defense, and other services’ in H1 of 2019-20 was higher than in H2 of 2018-19.
  • India’s external sector gained further stability in H1 of 2019-20:
  • Current Account Deficit (CAD) narrowed to 1.5 % of GDP in H1 of 2019-20 from 2.1 % in 2018-19.
  • Impressive Foreign Direct Investment (FDI).
  • Rebounding of portfolio flows.
  • Accretion of foreign exchange reserves.
  • Sharper contraction of imports as compared to that of exports in H1 of 2019-20, with easing of crude prices.
  • Headline inflation expected to decline by year end:
  • Increased from 3.3 % in H1 of 2019-20 to 7.35 % in December 2019-20 due to temporary increase in food inflation.
  • Rise in CPI-core and WPI in December 2019-20 suggests building of demand pressure.
  • Deceleration in GDP growth can be understood within the framework of a slowing cycle of growth:
  • Financial sector acted as a drag on the real sector (investment-growth-consumption).
  • Reforms undertaken during 2019-20 to boost investment, consumption and exports:
  • Speeding up the insolvency resolution process under Insolvency and Bankruptcy Code (IBC).
  • Easing of credit, particularly for the stressed real estate and NBFC sectors.
  • Announcing the National Infrastructure Pipeline 2019-2025.
  • Survey expects an uptick in the GDP growth in H2 of 2019-20:
  • 5 % GDP growth for 2019-20 based on CSO’s first Advance Estimates.
  • Expeditious delivery on reforms for enabling the economy to strongly rebound in 2020-21.

Fiscal Developments

  • Revenue Receipts registered a higher growth during the first eight months of 2019-20, compared to the same period last year, led by considerable growth in Non-Tax revenue.
  • Gross GST monthly collections have crossed the mark of Rs. 1 lakh crore for a total of five times during 2019-20 (up to December 2019).
  • Structural reforms undertaken in taxation during the current financial year:
  • Change in corporate tax rate.
  • Measures to ease the implementation of GST.
  • Fiscal deficit of states within the targets set out by the FRBM Act.
  • Survey notes that the General Government (Centre plus States) has been on the path of fiscal consolidation.

External Sector

Balance of Payments (BoP):

  • India’s BoP position improved from US$ 412.9 bn of forex reserves in end March, 2019 to US$ 433.7 bn in end September, 2019.
  • Current account deficit (CAD) narrowed from 2.1% in 2018-19 to 1.5% of GDP in H1 of 2019-20.
  • Foreign reserves stood at US$ 461.2 bn as on 10thJanuary, 2020.

Global trade:

  • In sync with an estimated 2.9% growth in global output in 2019, global trade is estimated to grow at 1.0% after having peaked in 2017 at 5.7%.
  • However, it is projected to recover to 2.9% in 2020 with recovery in global economic activity.
  • India’s merchandise trade balance improved from 2009-14 to 2014-19, although most of the improvement in the latter period was due to more than 50% decline in crude prices in 2016-17.
  • India’s top five trading partners continue to be USA, China, UAE, Saudi Arabia and Hong Kong.

 Sustainable Development and Climate Change

  • India moving forward on the path of SDG implementation through well-designed initiatives

SDG India Index:

  • Himachal Pradesh, Kerala, Tamil Nadu, Chandigarh are front runners.
  • Assam, Bihar and Uttar Pradesh come under the category of Aspirants.
  • India hosted COP-14 to UNCCD which adopted the Delhi Declaration: Investing in Land and Unlocking Opportunities.

COP-25 of UNFCCC at Mandrid:

  • India reiterated its commitment to implement Paris Agreement.
  • COP-25 decisions include efforts for climate change mitigation, adaptation and means of implementation from developed country parties to developing country parties.

Forest and tree cover:

  • Increasing and has reached 80.73 million hectare.
  • 56 % of the geographical area of the country.

International Solar Alliance (ISA)

  • ‘Enabler’ by institutionalizing 30 Fellowships from the Member countries.
  • ‘Facilitator’ by getting the lines of credit worth US$ 2 Billion from EXIM Bank of India and 1.5 Billion from AfD, France.
  • ‘Incubator’ by nurturing initiatives like the Solar Risk Mitigation Initiative.
  • ‘Accelerator’ by developing tools to aggregate demand for 1000 MW solar and 2.7 lakh solar water pumps.

General Studies-III

Topic- Government Budgeting.

Balance of Payments

Context

India’s Balance of Payments Position Improves, as Current Account Deficit Declines Further: Economic Survey

About

  • The Economic Survey 2019-20 was presented in Parliament.
  • The Economic Survey 2019-20 expressed satisfaction that India’s external sector has gained further stability in the first half of 2019-20.
  • Balance of Payments (BoP) position has improved, anchored by capital flows through FDI, FPI and ECBs;
  • Receipt of robust remittances and contraction of Current Account Deficit (CAD).

What Is the Balance of Payments (BOP)?

The balance of payments (BOP) is a statement of all transactions made between entities in one country and the rest of the world over a defined period of time, such as a quarter or a year.

Reason behind it:

Composition of Trade

  • India’s merchandise trade balance improved from 2009-14 to 2014-19 on the back of decline in crude prices.

Top exported commodities

  1. Petroleum,
  2. Oil and Lubricants (POL),
  3. precious stones,
  4. drug formulations & biologicals,
  5. Gold and other precious metals.

The largest export destinations being:

  1. United States of America (USA),
  2. followed by United Arab Emirates (UAE),
  3. China and
  4. Hong Kong.

Declined merchandise Imports-to-GDP ratio

  • The merchandise Imports-to-GDP ratio also declined, entailing a net positive impact on the BoP position.
  • This is because of the large presence of crude oil in the import basket.
  • Share of gold imports, another important component of import basket, has remained stable in spite of rise in gold prices.

Top import commodities

  1. Crude petroleum,
  2. Gold,
  3. Petroleum products,
  4. Coal,
  5. Coke &briquettes constitute top import items.

The largest Import from:

  1. China,
  2. USA,
  3. UAE and
  4. Saudi Arabia

Global Economic Environment

  • In sync with an estimated 2.9 percent growth in global output in 2019, global trade is estimated to grow at 1.0 percent after having peaked in 2017 at 5.7 percent.
  • The slowdown in world trade reflects a confluence of factors, including a slowdown in investment, reduced spending on capital goods and decline in trade of cars and car parts.

Trade Facilitation

  • Under trade facilitation, India has improved its ranking from 143 in 2016 to 68 in 2019 under the indicator, “Trading across Borders”, monitored by World Bank.

Trade Logistics

  • According to World Bank’s Logistics Performance Index, India ranks 44th in 2018 globally, up from 54th rank in 2014.
  • For which interventions like Fast-tag, Bharatmala, Sagarmala and Dedicated Freight Corridors will be a huge boost.

For Prelims

World Bank Doing Business Ranking

Highlights

  • India has jumped up 79 positions in World Bank’s Doing Business rankings.
  • It is on 63rd position in2019.
  • It has improved from 142 in 2014.
  • It has progressed on seven out of the 10 parameters.

Reason behind it-

The Goods and Service Tax (GST) and the Insolvency and Bankruptcy Code (IBC) top the list of reforms that have propelled India’s rise in rankings.

Concerns

However, it continues to trail in parameters such as:

  • Ease of Starting Business (rank 136),
  • Registering Property (rank 154),
  • Paying Taxes (rank 115), and
  • Enforcing Contracts (rank 163).