'Invisible hand' to help India achieve $5tn economy

Economic Survey 2020 bets on 'invisible hand' to help India achieve $5 trillion economy by 2025

The Economic Survey for 2019-20, authored by Chief Economic Advisor K Subramanian

A decade-low growth forecast for India in 2019-20 notwithstanding, the Economic Survey Friday said the economic slowdown had troughed but asked the government to take up bold reforms, cut subsidies, including Rs 1.84 lakh crore on food, and, go in for pro-business policies, honouring the wealth creators and markets, whose “invisible hand” could help India become a $5 trillion economy.

The survey for 2019-20, authored by Chief Economic Advisor K Subramanian, also sought to dump the criticism of an overestimation of India's economic growth rate by his predecessor Arvind Subramanian, saying the allegations were “unfounded” and not backed by proper data.

According to the official estimate, India's economy is projected to grow an 11-year low of 5% in 2019-20. The survey, however, projected the growth of 6%-6.5% in 2020-21, saying the business cycle shows, India has hit the trough and there should be an uptick in growth.

Though written in the backdrop of sky-rocketing prices of food and vegetables dis-balancing the budget of am average Indian kitchen, the survey sought to establish that the affordability of a plate of food for common man had increased in between 2006 and 2019

It devoted a full chapter on 'Thalinomics: The Economics of a Plate of Food in India', where it said affordability of vegetarian 'thalis' (a plate of food) improved by 29% while that of non-vegetarian by 18% between 2006-07 and 2019-20.

The government is currently under attack for a 356% rise in onion prices, which has contributed heavily to a six-and-a-half year high inflation rate of 7.4%. The prices of other vegetables and fruits too have stayed high this winter, the season when usually the vegetables and fruits sell cheaper.

“India’s aspiration to become a $5 trillion economy depends critically on strengthening the invisible hand of markets together with the hand of trust that can support markets,” he said drawing from Adam Smith's book “The Wealth of The Nations'.

The invisible hand, he said, needed to be strengthened by promoting pro-business policies to provide equal opportunities for new entrants, enable fair competition and ease doing business, eliminate policies that undermine markets through government intervention even where it is not necessary.

The theme of this year's survey was 'wealth creation', which took a cue from Prime Minister Narendra Modi's Independence Day speech, where he called 'wealth creators the wealth of the nation'.

“A feeling suspicion and disrespect towards India's wealth creators is ill-advised," Subramanian said, much to the delight of investors, who are expecting the union budget to relieve them from paying certain taxes.

On job creation, the survey prescribed a China-like 'importing from the world and assembling in India' policy, which can create four crore well-paid jobs by 2025 and 8 crore by 2030.

It was almost silent on the consumption slump compounding the economic slump but said an increasing focus on subsidies were choking investment and growth in the economy.

“This imbalance between subsidies and investments needs to be urgently corrected for sustainable growth in Indian agriculture and overall inclusive growth,” the survey said, asking the government to make food subsidy a “dynamic” one, which allows switching from physical handling and distribution of foodgrains to cash transfers/ food coupons/smart cards.

The survey also suggested the government relax the budget deficit targets this year in order to boost growth from a low of 5% projected for this year.

The CEA also downplayed the impact of the China-born coronavirus on the economy, saying it should be “marginal”.

Underlining the need for further reforms in the banking sector to lift the economy, the survey said historically, in the last 50 years, the top-five economies have always been ably supported by their banks.