Economic Survey: Grin and bear it

Economic Survey: Grin and bear it

Wealth creation new mantra with cheerful forecast of 6-6.5% growth

FPJ BureauUpdated: Saturday, February 01, 2020, 08:20 AM IST
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Finance Minister Nirmala Sitharaman | ANI Photo

Despite India's growth slipping to 4.5% in the July-September quarter, much below the projected 5% in 2019-20, Finance Minister Nirmala Sitharaman on Friday tabled the Economic Survey, which has forecast a feel-good 6-6.5% growth in the next fiscal, reasoning that growth has bottomed out. The pre-budget survey, presented in two volumes, has "wealth creation" as its theme, arguing that "for wealth to be distributed, it first has to be created."

It has called for looking at wealth creators with respect but derides crony capitalists who piggy ride to success with the government's support. It calls for "ethical" wealth creation through "the invisible hand of markets." Prepared by a team headed by young Chief Economic Adviser Dr Krishamurthy V. Subramanian, the Economic survey has a surprise dig at promotion of crony capitalism by the Modi government. It underscores that "pro-crony policies, in contrast to pro-business ones, erode wealth as cronyism fosters inefficiencies, thereby destroying value in the economy

So, India's aspiration to become a $5 trillion economy depends critically on promoting "pro-business" policy that unleashes the power of competitive markets to generate wealth.

Dr Subramanian said the theme of "wealth creation" is not new and is rooted in India's old and rich tradition since Kautilya's Arthashastra, which stresses that ethical wealth creation is a noble human pursuit. Using ancient literature and contemporary evidence, the survey states that India's dalliance with socialism is an exception, with a general overriding belief in the invisible hand of market.

It says India has been the dominant economic power globally for more than three-fourths of known economic history. Drawing on literature describing the ancient system, it says the invisible hand of the market supported by the hand of trust led to such dominance.

The survey identifies several levers for further wealth creation: entrepreneurship at the grassroots and promoting "pro-business" policies that may favour incumbent private interests. The survey presents evidence of large Indian companies wilfully defaulting on their loans, which happened in tandem with the donations to political parties and the lack of their disclosure. It is this phenomenon of credit boom and bust that manifested during the unprecedented and disproportionate growth in corporate credit between September 2007 and September 2013 and the subsequent decline after 2013.

INEFFECTIVE INTERVENTIONS: The Survey states government

interventions seem to be ineffective in stabilising prices of commodities such as onions. It has a separate chapter on undermining of markets to stress that the government intervention hurts more than it helps.

It says there is a case for government intervention when markets do not function properly, but excessive intervention, especially when markets can do the job of enhancing citizens' welfare perfectly well, stifles economic freedom.

The survey cites several laws that need to be either repealed or amended. It has also come down heavily on the states resorting to debt waivers to the farmers.

It says the full waiver beneficiaries consume less, save less, invest less and are less productive after the waiver when compared to the partial beneficiaries. It stresses that debt waivers disrupt the credit culture and end up reducing the formal credit flow to the very same farmers, thereby defeating the very purpose of the debt waiver to them.

For boosting growth, it has called for new ideas for manufacturing such as ‘assemble in India for the world’ which will create jobs.

It has also called for improving governance in public sector banks and the need for more disclosure of information to build trust. It also talks about dwarfism in the banking sector

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