Economic Survey says India needs 8% annual growth to become $5-trillion economy by 2024

India’s economic growth is likely to accelerate slightly to 7% in the financial year 2019-’20, from 6.8% in the previous year, the Centre said in the annual Economic Survey tabled in Parliament on Thursday. According to Chief Economic Advisor KV Subramanian, a real GDP growth rate of 8% is required to “achieve the vision of a $5-trillion economy”.

The Economic Survey is an annual report written by the chief economic advisor, which lays out the state of the country’s economy, presented in the run-up to the Union Budget. The survey usually contains a summary of the performance of major development programmes, the government’s policy initiatives, and a forecast of the economy’s prospects. The survey also contains sectoral overviews and comments on reform measures that are required.

Prime Minister Narendra Modi said the Economic Survey outlines the vision to achieve the $5 trillion economy. “It also depicts the gains from advancement in the social sector, adoption of technology and energy security,” he said on Twitter. Modi had set a goal of making India a $5-trillion economy by 2024.

KV Subramanian said a case has been made for “investment-driven ‘virtuous cycle’ to sustain growth at 8%”. He added that investment was the key driver of simultaneous growth in demand, jobs, exports and productivity. “In the next two decades, we will be able to avail the benefits of demographic change, which will enable us to grow in a sustained manner at 8%.”

According to the economist, Indian Micro, Small and Medium Enterprises “need to be freed from shackles that convert them into dwarfs”. These small and medium industries “need to be seen as a source of innovation, growth and job creation”, he added.

“Classical economics thinks of humans as robots, Economic Survey 2019 argues for an ambitious agenda for social change, treating humans as humans, relying on the lessons offered by behavioural economics,” Subramanian said in his press briefing.

Fiscal deficit and challenges

Both the volumes of the survey were released a day before Finance Minister Nirmala Sitharaman presents the Union Budget for the remainder of the ongoing fiscal year. According to the survey, general fiscal deficit was estimated at 5.8% of the Gross Domestic Product in 2018-’19, while the Gross Fiscal Deficit was 3.4% of GDP for 2018-’19.

“If private investment has to increase, it cannot be allowed to be crowded out by public investment,” Subramanian said at a press briefing after the report was tabled in the Parliament.

The projection for a 7% growth in the Gross Domestic Product is in line with the forecast by the Reserve Bank of India last month. In its monetary policy statement in June, the central bank had revised an earlier projection of 7.2% downward to 7% predicted earlier. In January-March 2019, India lost its tag of the fastest growing major economy to China after the growth rate declined to 5.8% – the slowest in 17 quarters.

The Economic Survey did not deal with the questions raised by KV Subramanian’s predecessor Arvind Subramanian, according to whom India’s economic growth was overestimated by 2.5% points per year between 2011-’12 and 2016-’17. The Economic Advisory Council to the prime minister has already rejected Arvind Subramanian’s claims.

Imports are slated to grow at 15.4% while exports are estimated to have grown 12.5% during the survey period. The forex reserve in 2018-’19 was $412.9 billion (Rs 28.42 lakh crore). The survey praised the government’s Swachh Bharat programme, saying it had led to “a sea change in the dignity of people, especially women”. It credited the programme with increasing girls’ enrollment in schools, and improving health standards.

The survey said the coming year would pose several challenges on the fiscal front. According to it, there are apprehensions of slowing of growth, which will have implications for revenue collections. “Secondly, the financial year 2018-’19 has ended with shortfall in GST [Goods and Services Tax] collections,” it added. “Therefore, revenue buoyancy of GST will be key to improved resource position of both Central and state governments.”

Inflation and minimum wage

The survey said the inflation rate in India has moved to a more stable and low level in the last five fiscals. Controlling price surge remains a key policy focus area of the government, it said. Retail inflation fell to 3.4% in 2018-’19 from 3.6% in 2017-’18, 4.5% in 2016-’17, 4.9% 2015-’16 and 5.9% in 2014-15. Food inflation based on Consumer Food Price Index declined to a low of 0.1% during the financial year 2018-19, the survey said.

The Economic Survey said that the economy witnessed a “gradual transition from a period of high and variable inflation to more stable and low level of inflation in the last five years”. “The government has taken a number of measures to control inflation specially food inflation,” it said.

The survey called for a redesign of the minimum wage system for “inclusive growth”. The survey suggested developing a mechanism to adjust minimum wages regularly and more frequently, a national level dashboard under the labour ministry with access to state governments.

Earlier in the day, Subramanian told ANI that his team had put a lot of effort into preparing the report and hoped that the report is able to contribute ideas for the economy.

“Looking forward with excitement to table my first – and the new Government’s first Economic Survey in Parliament on Thursday,” he had tweeted on Monday. This is Subramanian’s first Economic Survey since being appointed to the post in December.

Last year, the Centre said in the Economic Survey that the Indian economy was likely to grow at 6.75% in 2017-’18, and accelerate to 7%-7.5% in 2018-’19.