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The Economic Survey 2019 presented to the Parliament on July 4 – a day before the budget- has aroused some interest in the media and amongst the professionals. The Survey– primarily being authored by the Chief Economic Advisor to the Government- presents the economic thinking and perspectives behind the policy-making of the erstwhile government. It is the precursor to the budget and is expected to provide the rationale and the analytical framework latent in the budget.

The current Survey has been prepared under the guidance of the new Chief Economic Advisor (CEA), Dr. K. V. Krishnamurty, who assumed office in the wake of the resignation of the former CEA, Dr. Arvind Subramanium. Dr. Subramanium has recently ruffled a few feathers when he suggested in one of his research papers that there has been an upward bias in GDP estimates of the country. He argued that methodological changes in calculating GDP had led to overestimating GDP growth by at least 2.5% per year between 2011-12 and 2016-17.This suggestion is in  sync with the assertions of the 108 eminent economists of the country who issued a joint statement pointing to this overestimation problem. Rather, the new CEA has claimed in his press meet subsequent to the presentation of the Survey, “Let me tell you from my own observation that India is an economy where there are many many touch-points for policy and in the six months that I have been part of the government, I have been able to see it from close quarters. Because there are several touch points for policy, it is very hard to try and create a narrative which is different from the truth”. So, it seems that the government is dismissive of the idea of undertaking a comprehensive review of the estimation procedures of macroeconomic numbers.

It should be kept in mind that the present political formation at the Centre has come through a general election with flying colours. The election was won by the present ruling party without any significant economic manifesto. Therefore, the present government is under no obligation to come up with any economic programme of significant consequence. Given this backdrop, the Survey has claimed to venture into the ‘blue-sky’ thinking, promising a break from the earlier stereotyping. However, if one is not cautious enough such exercises in novelty may end up in wishful thinking with very little inkling to the ground reality.

One of the major focuses of the Survey has been triggering the growth impetus to reach the dream of $5 trillion economy by 2025. Unfortunately, the Survey did not spell out the road-map to achieve the ambitious target. A back of the envelope calculation suggests that in order to attain that giant size of the economy, India needs to grow by 8% annually. Given the fact that by official accounts India is currently growing at 7%, the possibility of 8% annual growth rate remains a daunting task.

Even if we ride the wave of optimism of the Survey one may ponder over the sources of financing of this high growth. The basic income-expenditure identity asserts that mainly there are four sources of effective demand in the economy, viz., consumption, government consumption, investment and net exports (exports minus imports). Going by the current trend the private consumption expenditure accounts for almost 60% of the GDP, whereas the investment accounts for 30%. The government expenditure eats away another 10%. The net exports have been negative. India is presently a consumption-driven economy.

If we look at the experience of the Asian countries in the recent times we should notice that the countries that were successful in achieving higher growth rates in the range of 8-10% were having the domestic savings rate in the range of 40-45% of gross domestic product. These countries were also enjoying a comfortable net export balance. Even the Survey has mentioned it,“China has relied primarily on savings and investment with consumption decreasing significantly as a share of GDP. China remains an investment-driven economy even today with its investment and savings rates reaching about 45% of GDP even in 2017.” Contrarily in the Indian case, the domestic saving has been on a downward trend. Now the question arises where is the magic wand that would transform India overnight into a saving and investment-driven economy from a consumption-driven economy. 

In this context we may note that the Chinese economy has primarily been financed by private corporate business savings. Now the private corporate business saving is generally sourced from the corporate profitability. China’s success in manufacturing provided right environment for realisation of corporate profitability. But India has missed the industrialisation bus. It might be a big puzzle to the academic economists why India has missed the bus of industrialisation but in the absence of manufacturing success the surge in corporate profit and consequent increase in private corporate business saving is hard to come by.

Actually in India, it has long been observed that there is strong complementarity between government investment and private investment. Unless the government takes the lead the private investment does not flow. If we look at the economic history of India we should notice that private investment flourished in the Bombay Presidency. But in all other regions of India it was the story of state sponsored development. Even the heydays of Bengal industrialisation was marked by heavy investment by the railways. Therefore, in India the importance of government investment cannot be denied. Even last year’s Survey placed high importance on government investment. Last year’s Survey even recommended moderate fiscal profligacy to boost the flagging government investment. But the current Survey has relied heavily on private investment to take the economy to the goal of a $5 trillion economy. Only time will tell whether this shifting of gear would take us to the destination or not.

-----The author teaches economics at the University of Calcutta