Economic Survey

2019-20

Chief Economic Adviser

Government of India

National Media Centre

31st January, 2020

„Lavender‟ cover

captures the „new‟

and the „Rupee‟

“Synthesis of Old &

New”

•Purple New ₹100 note

with Old ₹100 note

•Contemporary evidence

with ancient ideas

Weak global economic growth

3.6

2.2

4.6

6.7

3.0

1.7

3.9

5.9

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

World AE EMDE EDA

(per

cen

t)

2014-2018 (average) 2019

Boom & bust in Corporate Credit

40%

42%

44%

46%

48%

50%

52%

54%

56%

Sep

-07

Sep

-08

Sep

-09

Sep

-10

Sep

-11

Sep

-12

Sep

-13

Sep

-14

Sep

-15

Sep

-16

Sep

-17

Sep

-18

Sep

-19

Share of Corporate Loans in Non-Food Credit

Investment affected by Declining Credit

Firm Year Credit

Expansion

(Increase in

debt/assets

ratio)

Investment

(Growth in

Fixed Assets)

Relationship

2011 2006-10 2011-15 Not Significant

2012 2007-11 2012-16 Not Significant

2013 2008-12 2013-17 Significant and

Negative

2014 2009-13 2014-18 Not Significant

2015 2010-14 2015-19 Not Significant

Lagged effect of declining investment on

GDP growth

Slowdown in pvt. investment from 2013 due to credit boom-bust

+ 4 year lag effect of investment on growth

= Decline in growth since 2017

Investment

Economic

Growth

Consumption

Economic Dominance & Wealth creation

“Wealth, the lamp unfailing, speeds to every land,

Dispensing darkness at its Lord's command.”

– Thirukural, Chapter 76, verse 753.

INDIA

Wealth creation benefits all

y = 0.6762x - 1.938

R² = 0.4916

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

7.0 9.0 11.0 13.0 15.0 17.0

Log (

Em

plo

yee

sala

ries

)

Log (Increase in Wealth)

Wealth creation benefits all

y = 0.5233x + 1.5704

R² = 0.139

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

12.0

13.0

11.0 12.0 13.0 14.0 15.0 16.0

Log (

Su

pp

lier

ben

efit

s)

Log (Increase in Wealth)

Wealth creation benefits all

y = 0.9741x - 5.3465

R² = 0.2325

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

12.0

13.0

11.0 12.0 13.0 14.0 15.0 16.0

Log (

Fore

ign

exch

an

ge

reven

ues

)

Log (Increase in Wealth)

Wealth creation benefits all

y = 0.9588x - 2.8718

R² = 0.5891

-0.1

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0

Log (

Dir

ect

taxes

paid

)

Log (Increase in Wealth)

Weak global economic growth Arthashastra: “The root

of wealth is economic

activity and lack of it

brings material distress.

In the absence of fruitful

economic activity, both

current prosperity and

future growth are in

danger of destruction.”

Thirukural Verse 754:

“(Wealth) yields

righteousness and joy,

the wealth acquired

capably without

causing any harm.”

The Survey introduces the idea of “trust as a public good that gets enhanced with greater use”

Ten new ideas

Wealth creation benefits all

Markets enable wealth creation

Trust: a “public good that ↑ with use”

Grass-root

Entrepreneurs

create wealth

in their

districts

Pro-business policies give equal opportunity

Remove anachronistic Government interventions

Job creation

by “Assemble

in India for the

World”

Changes to

EODB for

India to rank

in top 50

Banking

Sector sub-

scale

compared to

Economy

Thalinomics

Weak global economic growth

Contemporary Evidence: Wealth Creation

in India after liberalization

Oct '99

Feb '06

Jul '07 Dec '07

Jun '14

Apr '17

Jan '18 Jun '19

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

20

40

60

80

100

120

140

160

180

5000 10000 15000 20000 25000 30000 35000 40000

CA

GR

No. of

mon

ths

Sensex milestones (points)

Months since last milestone CAGR from previous milestone

Phase II

Slowdown

Phase III

Revival

Phase I

Accelerated growth

Contemporary evidence: Benefits of enabling

the invisible hand of the market (Banking)

Do

mest

ic c

red

it t

o G

DP

rati

o

Contemporary evidence: Benefits of enabling

the invisible hand of the market (MFs)

Contemporary evidence: Benefits of enabling

the invisible hand of the market (Transport)

Contemporary evidence: Benefits of enabling

the invisible hand of the market (Transport)

Weak global economic growth

Pro-crony policies undermine trust

30

32

34

36

38

40

42

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

45

95

145

195

245

295

Dec

-06

Dec

-08

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

Connected Companies Index

BSE500 Index

CAG Report on

2G Spectrum

Transparency International’s

Corruption Perception Index

Lower rank = Higher corruption

Returns earned by “connected”

Companies before-after 2011

Poor quality of financial statements of large

defaulters’ => Trust deficit affects all firms

200

230

260

290

320

350

380

410

440

470

500

Firm 1 Firm 2 Firm 3 Firm 4 Firm 5 Firm 6 Firm 7 Firm 8 Firm 9 Firm 10 Firm 11

Acco

un

tin

g sco

re

s

2012 - median universe score 2013 - median universe score 2014 - median universe score

2012 - Score 2013 - Score 2014 - Score

Wealth erosion by willful defaulters

55

70

115

136 138 149

169

₹0

₹20

₹40

₹60

₹80

₹100

₹120

₹140

₹160

₹180

MGNREGA Fertilizer

subsidy

Rural

development

Willful

defaulters

outstanding

Health,

education

and social

protection

Railway

capex

Food subsidy

Th

ou

san

ds

of

Cro

res

Related party transactions & Share

pledging by willful defaulters in India

Disclosure of RPTs Promoter holding pledged Loans to related parties

Panel A: Comparing Wilful Defaulters and Non-defaulters

Disclosure of RPTs Promoter holding pledged Loans to related parties

Panel B: Comparing Wilful Defaulters and Distress Defaulters

Information asymmetry hurts trust

5%

15%

25%

35%

45%

55%

65%

75%

85%

95%

Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19

PSB PVT

Proportion of Lenders Tagging an already tagged NPA (by Another Bank) as

NPA in their books

“Instruments

for Wealth

Creation”

Wealth creation through Entrepreneurship at

the grassroots

New Firm Creation across Districts

Growth in new firms in India

45,000

55,000

65,000

75,000

85,000

95,000

105,000

115,000

125,000

135,0002

00

6

200

8

201

0

201

2

201

4

201

6

201

8

Nu

mb

er o

f N

ew F

irm

s

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

20

06

20

08

20

10

201

2

20

14

20

16

20

18

Nu

mb

er o

f N

ew F

irm

s

Agriculture Manufacturing

Services Infrastructure

3.8%

12.2%

World bank Data Max in Services

Creative Destruction through Pro-Business

policies: Impact of Liberalization

40%

50%

60%

70%

80%

90%

100%

t t+1 t+2 t+3 t+4 t+5 t+6 t+7 t+8 t+9

Constituents retained from 1986 Sensex Constituents retained from 1997 Sensex

1997 Index:

Large Churn

1986 Index:

Minimal Churn

Creative Destruction through Pro-Business

policies: Impact of Liberalization

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%1

98

5

19

87

19

89

19

91

19

93

19

95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

20

11

20

13

20

15

20

17

20

19

Pe

rce

nta

ge

of

firm

s in

sp

eci

fic

sect

ors Utilities

Real Estate

Materials

Information Technology

Industrials

Health Care

Financials

Energy

Consumer Staples

Consumer Discretionary

Communication Services

Wholesale Retail

Unintended consequences of Govt

intervention Essential Commodities Act (ECA) is ineffective in stabilizing prices

0

0.5

1

1.5

2

2.5

3

Qtr

4-2

004

Qtr

3-2

005

Qtr

2-2

006

Qtr

1-2

007

Qtr

4-2

007

Sta

nd

ard

dev

iati

on

of

dail

y p

rice

s

Rice

Gram dal

Pro

du

ctio

n s

hock

Sto

ck l

imit

im

po

sed

0

0.5

1

1.5

2

2.5

Qtr

2-2

007

Qtr

1-2

008

Qtr

4-2

008

Qtr

3-2

009

Qtr

2-2

010

Qtr

1-2

011

Qtr

4-2

011

Sta

nd

ard

dev

iati

on

of

dail

y p

rice

s

Salt

Sugar

Sto

ck l

imit

im

po

sed

Pro

du

ctio

n S

hock

Retail Retail

Unintended consequences of Govt

intervention Essential Commodities Act (ECA) is ineffective in stabilizing prices

“Assemble in India for the World”

World Export Share Effect of Specialization Effect of Diversification

Understanding India‟s Export under-performance vis-à-vis China

Gain from Assembly of iPhone 7: Lesson

from China

Distribution of value added in iPhone 7

China makes only

US$8.46 from assembly

of an iPhone 7

However, total

Chinese value added

is very high ($8.46 ×

number of iPhones

sold in the world)

Job opportunities & wealth creation through

Exports

Exports of

Network

Products (NPs)

expected to

equal

$7 trillion

worldwide

in 2025

Incremental

value added

from exports

expected at

$248 billion in

2025 - 1/4th of

the increase

required for $5

trillion

4 crore well-

paid jobs by

2025 and 8

crore by 2030

Why is the opportunity now?

0

5

10

15

20

25

30

196

2

197

0

197

8

198

6

199

4

200

2

201

0

201

8

Japan

0

1

2

3

4

5

196

2

197

0

197

8

198

6

199

4

200

2

201

0

201

8

Korea

0

5

10

15

20

25

30

196

2

197

0

197

8

198

6

199

4

200

2

201

0

201

8

China

0

0.2

0.4

0.6

0.8

1962

1966

1970

1974

1978

1982

1986

1990

1994

1998

2002

2006

2010

2014

2018

India

Targeting Ease of Doing Business (EODB)

in India

India

Avg of 18 days to set up a business

(10 cumbersome procedures)

To open a restaurant:

45 documents needed to obtain the

necessary license from Delhi police

New Zealand

Half a day to set

up a business

(single form)

To buy a gun:

Only 19

documents!

142 in 2014

63 in 2019

World Bank‟s Doing Business Rank

India continues to trail in:

• Ease of Starting Business,

• Registering Property,

• Paying Taxes, and

• Enforcing Contracts

Sub-scale of India’s Banking Sector

0

2

4

6

8

10

12

14

16

18

20C

hin

a

US

A

Japan

Fra

nce

South

Kore

a

UK

Can

ada

Ger

man

y

Spai

n

Aust

rali

a

Bra

zil

Net

her

lands

Sin

gap

ore

Sw

eden

Ital

y

Sw

itze

rlan

d

Aust

ria

Bel

giu

m

Den

mar

k

Fin

land

Ind

ia

Norw

ay

Russ

ia

Ind

ia

Number of banks in global top 100 (2019)

For the size of its

Economy, India should

have 6 banks in Global

Top 100 and 8 by 2025

Sub-scale of India’s Banking Sector

Sub-scale of India’s Banking Sector

Even at current GDP per capita,

Private credit to GDP should be 80%

higher than what it is currently

Sub-scale of India’s Banking Sector

Public Sector Banking Network:

Analytics, AI-ML for Better Decisions

PSB DATA

SOURCES PSBN CUSTOMER

EKYC

UNDERWRITING

• Several leading indicators for willful and large defaults => Data analytics can plug holes

• Within legal framework, data can be pooled to generate “Big Data” for AI-ML

A new health index to track Financial

Fragility in the NBFC Sector

30.89

43.07

51.53 53.44

12.27

28.64

5.70

(5.42) (8.60)

Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19

(20)

-

20

40

60

Health Score (HFC Sector)

Vegetarian Thali Prices at All-India

Level

Increasing Affordability of Vegetarian Thali

Thalinomics: The Economics Of A Plate Of

Food In India

45

50

55

60

65

70

75

20

06-0

7

20

07-0

8

20

08-0

9

20

09-1

0

20

10-1

1

20

11-1

2

20

12-1

3

20

13-1

4

20

14-1

5

20

15-1

6

20

16-1

7

20

17-1

8

20

18-1

9

20

19-2

0*

per

cen

t

10

15

20

25

30

20

06-0

7

20

07-0

8

20

08-0

9

20

09-1

0

20

10-1

1

20

11-1

2

20

12-1

3

20

13-1

4

20

14-1

5

20

15-1

6

20

16-1

7

20

17-1

8

20

18-1

9

20

19-2

0*

₹

State-wise Prices of Veg Thali

in Northern States

State-wise Prices of Veg Thali

in Southern States

State-wise Prices of Veg Thali

in Eastern States

State-wise Prices of Veg Thali

in Western States

THANK YOU