The $5 trillion-economy bubble
Investment is the flavour of the newly released Economic Survey FY20. In the words of the Chief Economic Advisor Krishnamurthy Subramanian, "Investment as a per cent of GDP has to be in excess of 30-35 per cent". He asserted how China, at its peak, investment was close to 50 per cent while consumption decreased significantly as a share of GDP. Even today, it remains an investment-driven economy with a high share of percentage in the GDP–around 45 per cent in 2017. Subramanian facilitates a conclusion that investment is the key driver of economic activity that has the potential to perpetuate the virtuous cycle of savings, exports, and growth. Together with savings, both can catapult India beyond the threshold of current economic growth, making the ambition of a $5 trillion economy by FY25 achievable. The economic slowdown that India has been experiencing lately can be attributed to the slump in consumption given India's consumption-driven economy. It is true that for the past years consumption has been a parameter to register growth in GDP. Policies have circled around how people can be given a consumption thrust to ensure the rising figures. RBI's successive repo rate cuts and the 'accommodative' stance have signified this. The Monetary Policy Committee's focus has been to provide lenders with lucrative interest rates to have consumers exercise a free hand–all resulting in increased consumption. But monetary policies that safeguard consumer interest and give the much-needed thrust to the economy keep India's consumption-driven economy in mind. The Economic Survey 2019-20 takes an exit from this trajectory and aspires for a newer one where investments and savings take precedence, crafting an unfamiliar but possible trajectory of growth for the Indian economy. Mirroring China is not the goal yet inspiration can be drawn to register a significant thrust. In layman's term, investment simply pushes demand since dividends from investment provide an incentive for consumption. Investment also creates more capacity and this excess capacity can serve the purpose of pushing up exports. The Economic Survey focuses on a flurry of pointers which hint at increasing investment and savings for the greater good of the economy. The survey presses for a healthy India which induces more labour productivity and results in byproducts of increased savings and investment. For instance, the behavioural changes induced due to Swachh Bharat have resulted in more financial savings than spending. Making open defecation free environments for the poor households will reduce the risk of diseases boosting financial savings in the larger picture. Spurring job growth is another area to focus on as investment and saving will be higher with a large employed force. But spurring job growth is not a simple task and involves a horde of policies. It is to this end that careful policymaking takes precedence. Reducing uncertainty in policymaking is paramount to safeguarding investor sentiment as it is to spur economic growth. Starting from the bottom segment, a minimum wage policy for daily wage earners will drive up demand and result in savings and investment. Strengthening the middle class, who are fond of savings, and incentivising top taxpayers, who are prime drivers of investment, will require effective policymaking to yield the desired dividends. Indian MSMEs need to take centre-stage and seen as a source of innovation, growth as well as job creation. Requisite policies in favour of MSMEs will make them thrive and yield greater profits which will ensure higher productivity and more jobs. Behavioural economics deserves limelight in this ambition since several government schemes have portrayed a positive impact on the economy on account of behavioural changes such as opting for gas connection in place of gas subsidies or setting up toilets to curb open defecation. The Survey recommends instating a behavioural economics division in NITI Aayog to analyse and present recommendations that induce a similar behavioural change which will augur well for jobs and financial savings. Financial cases stuck in judicial corridors need to be fast-tracked to ensure the ease of doing business that is directly proportional to investment. This calls for judicial reforms such as expedited verdicts through improved administration of courts and increased working hours to handle a mountain of pending cases. Easing labour laws will pave the way for employment which is crucial for a positive shift in the requisite parameters–investment and saving–for economic growth.
It has been analysed that NBFC stress and rising NPAs have majorly contributed to the economic slowdown experienced in FY19. While IBC and FEO are important legislations to cater to the rising problem of insolvency and NPAs, fast-tracked tribunals and stern regulations will help in reducing their grave figures. The Economic Survey has laid out the road map for registering a minimum of eight per cent sustained GDP growth in order to achieve our Prime Minister's vision of making India a $5 trillion economy. But a map is only as good as the user. Implementation, as always, will remain the key.
