Economic Survey 2019-20 was tabled in Parliament after the address of the President inaugurating the budget session. Substantively written by the Chief Economic Advisor — a relatively autonomous post within the government — the Economic Survey is supposed to provide a frank and technocratic assessment of the economy and the ideal policy response to the economic problems confronting the country.

Indian GDP grew at a rate of 4.8 per cent in the first half of 2019-20, slower than the last half of 2018-19. The slowdown was mostly precipitated by a sharp decline in fixed investment, especially in the second quarter of this fiscal year. Performance of exports was disappointing as well. However, this did not affect the current account deficit (CAD) as the import growth, being a function of GDP growth, slowed down as well.

The survey acknowledged that the slowdown is particularly acute in industries. In the first half of the current year, Index of Industrial Production (IIP) barely grew at 0.6%. The growth in eight core industries, which accounts for around 40% weight in IIP, was nearly flat in the period between April and November 2019.

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Survey attributes this dismal performance mainly to the ‘slower credit flow to small and medium industries’. According to the survey, ‘reduced lending by the NBFCs’, ‘tapering of domestic demand for sectors such as automobiles and pharmaceuticals’ are the other factors which contributed to the slowdown.

More worryingly, the survey notes that labour-intensive and export-oriented sectors such as gems and jewellery, basic metals, leather and textiles have been hit hard by the lack of international demand. It is obvious that India, unlike some other nations of East Asia, has not been able to take advantage of the reconfiguration of the global supply chains due to the US-China trade tensions.

The challenge of slowing growth reflected itself in deteriorating condition of public finance as well. Survey notes: “Net Tax revenue to the Centre, which was envisaged to grow at more than 25 per cent in 2019-20 BE [Budget Estimate] relative to 2018-19 PA [Provisional Actuals], grew at 2.6 percent during April to November 2019, which was nearly half its growth rate for the corresponding period last year.“

Non-tax revenue seems to have grown well, largely on the back of the surplus transferred by the Reserve Bank of India. Government expenditure has remained steady. In fact, ‘Public administration, defence and services’ was partly responsible for supporting the growth during the first half of this fiscal year.

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Given the dismal state of tax collection and the need for government expenditure to support economic growth, the survey bats for relaxing the fiscal deficit targets laid down by Fiscal Deficit and Budgetary Management (FRBM) Act. Specifically, it notes: "Going forward, considering the urgent priority of the Government to revive growth in the economy, the fiscal deficit target may have to be relaxed for the current year."

Further, the survey elaborates on one positive structural reform which the current government can be legitimately credited for. The Insolvency and Bankruptcy Code (IBC) — a legal framework for the resolution of bad debts — seems to have become successful. Survey notes that it has a decent recovery rate of 42.5 per cent in 2018-19. Resolution time has reduced substantially, from an earlier 4.3 years to less than one year now. However, this headline figure should be interpreted with caution as much of the recoveries are concentrated in select industries such as steel.

In short, the survey paints a clear picture of an economy that is dealing with demand constraints and friction in the financial sector. It remains to be seen what steps the union budget will take to address the problems which have been enumerated in the economic survey.

(Avinash Tripathi works for Research Center, Azim Premji University, Bengaluru)

Disclaimer: The views expressed above are the author’s own. They do not necessarily reflect the views of DH.