A blueprint for a $5-trillion economy

Shishir Sinha New Delhi | Updated on July 04, 2019

Dr Krishnamurthy V. Subramanian, Chief Economic Adviser (CEA)

Pitches for increase in retirement age to match rise in life expectancy

In his Economic Survey for 2018-19, presented on Thursday, Chief Economic Adviser KV Subramanian has drawn up a blueprint to make India a $5-trillion economy by 2024-25.

This, the survey says, can be done by pushing investment (especially in the private domain), promoting exports, nourishing MSMEs, and ensuring policy consistency. Achieving that target will require the GDP to grow by at least 8 per cent in real terms for the next few years, it says.

The survey pegs the growth rate for the current fiscal at 7 per cent, marginally up from the five-year low of 6.8 per cent in the previous fiscal. With the fiscal deficit and inflation in check, macro-economic stability has been maintained, it notes.

A rise in retirement age for most of India’s working population from the current 60 years seems inevitable due to an increase in life expectancy, according to the survey. The population is expected to grow under 0.5 per cent during 2031-41 due to a decline in fertility rate and increase in life expectancy, it says. “Since an increase in the retirement age is perhaps inevitable, it may be worthwhile signalling this change well in advance... so that the workforce can be prepared,” it adds.


Budget indications

Based on what the survey indicates, Finance Minister Nirmala Sitharaman’s Budget on Friday will likely focus on achieve fiscal consolidation and give a push for investment with an eye on creating more jobs.

Also, Micro, Small and Medium Enterprises (MSMEs) may get a policy boost. There could also be some incentives to push savings, and accelerate investments.

The cover page of the first Economic Survey of the Modi 2.0 government is in sky-blue colour, signalling the government’s unfettered “blue sky” thinking, said Subramanian. ‘#Economy@5trillion’ is its stated vision.

The survey talks of “shifting gears” through a “virtuous cycle” with investment as the key driver.

“The survey makes a sincere effort to live up to the expectation of being an indispensable guide for following, understanding and thinking about the Indian economy,” Subramanian said.

“We have been growing at a good rate, but need to shift gears to grow at a sustained 8 per cent rate to reach a $5-trillion economy,” he told mediapersons. Private investment is a key driver for demand, capacity, labour productivity, new technology, creative destruction and job creation. Investment as a percentage of GDP has to be in excess of 30-35 per cent; in China, at its peak, it was close to 50 per cent, he noted.

“Gross fixed capital formation in India should go up from 29.3 per cent currently to the mid-30 per cent level,” he said.

Never an equilibrium

The survey departs from the traditional ‘Anglo-Saxon’ thinking by viewing the economy as being either in a virtuous or a vicious cycle, and thus never in equilibrium. Accordingly, it lists key ingredients for a self-sustaining virtuous cycle: presenting data as a public good, emphasising legal reforms, ensuring policy consistency, nourishing MSMEs to create jobs, reducing the cost of capital, and rationalising the risk-return trade-off for investments.

A chapter on ‘Nourishing Dwarfs to become Giants’ addresses policies for MSMEs’ growth. “It’s the young firms that grow and create jobs. We need to focus on unshackling MSMEs and enabling them to grow and create jobs and exports,” Subramanian said.

For MSMEs, the survey suggests a sunset clause of less than 10 years — with grandfathering — for all size-based incentives. It also favours deregulating labour law and re-calibrating priority sector lending guidelines to direct credit flow to young firms, it says.

Inspired by Nobel Laureate Robert Thaler, the survey calls for harnessing insights from behavioural economics to create an aspirational agenda for social change. Under this, ‘Beti Bacho Beti Padhao’ will become ‘BADLAV’ (Beti Aapki Dhan Lakshmi Aur Vijay Lakshmi); ‘Swachh Bharat’ will be ‘Sundar Bharat’; the ‘Give it up’ campaign for LPG subsidy will be ‘Think about the Subsidy’; and the focus will move from ‘tax evasion’ to ‘tax compliance’.

Published on July 04, 2019

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