Survey trusts free markets to create wealth

CEA Krishnamurthy Subramanian suggests many micro solutions for macro problems

Setting the tone for Saturday’s Union Budget, the Economic Survey for 2019-20 has kept its faith in the “invisible hands of markets” to help India get out of the current morass of economic slowdown and march ahead in the journey of achieving $5-trillion economy by 2025.

Prompted by the global financial crisis and the recent problems of India’s financial sector, Chief Economic Advisor Krishnamurthy Subramanian has, in the Survey, made a case for the hand of trust to support the “invisible hands of markets”.

Building on last year’s Survey theme of “unfettered blue sky thinking”, the latest edition has gone with “wealth creation” as its overarching theme, while pitching for “aggressive disinvestment” in Central Public Sector Enterprises (CPSEs), preferably through the strategic sale route.

Disinvestment push

An aggressive approach to disinvestment, despite the expected significant shortfall in achieving the target on this account this fiscal year is the way to go to facilitate “creation of fiscal space” and improve efficient allocation of public resources, according to him.

The Survey has advocated transferring government holdings in CPSEs to a separate corporate entity, which should be mandated to divest the stake over a period.

Overall, the Survey has tries to craft a framework of policies that can foster “wealth creation” for India. It has also sought to put to rest any scepticism about the benefits accruing from a market economy, both in economic thinking and policy making.

For the upcoming fiscal year 2020-21, the Survey has forecast GDP growth of 6-6.5 per cent, stating that economic slowdown has bottomed out.

This, say economy watchers, looks somewhat ambitious given that the first advance estimates by the Central Statistics Office (CSO) recently projected India’s GDP growth in 2019-20 at 5 per cent, a 11-year low.

But Subramanian said that the economy has bottomed out and will see an uptick from here on..

Also Read
Economic Survey advocates further ‘economic freedom’

Although the latest Survey has charted out several strategies for “wealth creation”, it has refrained from setting out a fiscal strategy that the government can follow. The government is most likely to miss the 3.3 per cent (as a percentage of GDP) fiscal deficit target for 2019-20.

Some economists even felt that the Survey not framing an ideal fiscal roadmap is the government’s way of continuing to hide the fiscal deficit problem. On Saturday, the government is widely expected to trim tax revenue forecasts for 2019-20.

Grassroots entrepreneurship

To boost wealth creation, the Survey has identified several levers including promoting entrepreneurship at the grassroots, as reflected in new firm creation in districts, and pushing “pro-business” policies to unleash the power of competitive markets to generate wealth as against “pro-crony” policies that may favour incumbent private interests.

The Survey makes the case that the churn created by a healthy pro-business system generates greater wealth than a statistic pro-crony system.

It also argues for eliminating policies that undermine markets through government intervention even where it is not necessary. Also, the Survey has made a case for integrating “Assemble in India” into “Make in India” to focus on labour intensive exports and thereby create jobs on a large scale.

For tackling the fragility in the NBFC sector, which is still reeling from the recent blowouts at IL&FS and DHFL, the Survey has suggested the concept of ‘Health Score’ as a measure of health of a non-banking finance company.