ECONOMIC SLOWDOWN: A PERSPECTIVE

The recently released report by Central Statistical Office, Government of India shows that GDP growth stood at 5% at the end of first quarter of 2019-20 which has been the lowest since quarter 4, 2012-13. There has been a gradual fall in the growth rate since Quarter 1 of 2018-19.

Source: Ministry of Statistics and Program implementation(MOSPI)

NITI Aayog Vice-Chairman Rajiv Kumar has termed the ongoing stress in financial stress as “unprecedented in the last 70 years” while calling for extraordinary steps to tackle the economic slowdown. Chief Economic Adviser K V Subramanian attributed this slowdown to both endogenous and exogenous factors. According to him global factors like deceleration in developed economies, Sino-American trade conflict etc., has an impact on the Indian economy. The government has focused to revive the economy and there has been host of measures taken by the Finance Ministry.

Before giving any medicine it is very important to understand what is the disease and what caused the disease, then only the antibiotics will work. Yes, the global economy definitely has an impact. But the slump in growth of Chinese economy has been much less severe if we compare the performance of first quarter, 2019-20 with that of the previous financial year.

Source: MOSPI Data, World Bank reports

This clearly indicates that while the global economy impact has been effecting, there has been a host of endogenous factor that has impacted the Indian economy severely since the first quarter of 2018-19. There has been a significant decline in the consumer demand. The growth rate of private consumption declined to 3.1 % as against 7.3%.

Source: MOSPI


There has been a significant drop in two wheeler and car sales. One of the possible reasons has been that there has been suspicion in the economy leading to lack of spending or lack of desire to spend from the more formal sector employees. But this lack in consumer demand is not restricted to luxury products alone. We also see a huge drop in sales of low ticket products like for example, a 5 rupee biscuit as well and further study clearly points out that this drop in FMCG demand is more rural India driven. All these drop in sales has lead to significant job loss in the economy.

 Now what is causing this lack in demand. The agriculture sector which had shown high growth in first quarter 2018-19. But since then there has been a significant drop in the growth of this sector.

Source: MOSPI

Agriculture sector employs the highest number of Indians. Almost 60% of Indians are dependent on this sector. So if the most people intensive sector shows a slow growth, this is bound to have an impact on the consumption demand.
After agriculture, the construction sector and the manufacturing sector are the most labour intensive sectors. There has been a severe impact of the slowdown in both the sectors. The construction sector grew at around 5.7% in comparison to 9.6% in the same quarter in the previous year.

Source: MOSPI

Similar is the situation in the manufacturing sector. This sector has a mere growth rate of 0.6% as against 12.1% in the previous year.

Source: MOSPI

The slowdown in these sectors is also manifested by a slowdown in the growth of MSME loans. There was almost a 25% growth in MSME loans in the range of 1 lac to 50 crore in 2017-18. But in 2018-19 this has dropped below 10% as per recent analysis by different agencies. Moreover the growth is less than 2% in the higher ticket size( 10 cr to 50 cr) segment.This clearly suggests a slump in the MSME sector.

So what we see is a decline in the growth of the people intensive sectors. This effects the economy significantly as this has a wide impact on the mass demand as the sectors where a vast majority of Indians are dependent are showing a slump. Added to this is the perception that the economy is doing bad. This has lead to holding back in spending mainly for the formal sector employees. Let us look into possible solutions to boost up demand in the economy.
A reduction in tax rate has been widely regarded as a means to increase consumption demand. But in Indian scenario this at best can have a impact on the formal sector employees who has a lack of desire to spend or are holding the spending and yes has some potential impact of increase in demand. So while tax cut is welcome, but is should be cut in indirect tax as that will impact more people. But is it a feasible solution? We have recently seen a huge transfer of RBI reserves worth Rs 1.76 lakh crore to the government of India. Given the need for such unprecedented money by the government, it is unlikely that a significant tax cut will be announced. As that will lead to a decline in tax revenue and will mean more funds will be required by the government.

Any means to pump in consumption demand not sustainable unless there are steps taken to boost the people intensive sectors like agriculture, construction and manufacturing. Unless the slump in the people intensive sectors stops, the problem of lack of demand will not be solved. More thought through steps to boost the people intensive sector is the need of the hour and the right medicine for the present problem.

Economic Performance: First Quarter 2019-20

The Central Statistical Office, Government of India published the report on GDP growth performance after the first quarter of 2019-20. The GDP growth rate stood at 5%, lowest since 2013-14. The downside started since second quarter of 2018-19. The growth rate stood at 5.8% in Q4, 2018-19.

Source: CSO Reports, Government of India

The sector wise growth numbers also showed a downside for most of the sectors. The downside has been most prominent for the manufacturing sector in comparison of the quarter one performance of 2018-19. There has been a few sectors which showed a better performance as compared to the same quarter in 2018-19. The better performance was most prominent in Mining & Querying sector.

Source: CSO Reports, Government of India


Health and Education has high association with GDP Per Capita Growth

The Economic Survey has set the target of becoming a 5 trillion economy. A lot of debate has been on how this can be achieved . What are areas should be focused on in order to achieve this objective. IPD examines how outcome of different socio-economic indicators are associated with the GDP Per Capita. In the article titled “State wise Performance across Different Socio-Economic Parameters“, the state wise ranks where given and a composite index was created based on four dimensions, viz., Health, Education, Unemployment and GDP Per Capita. The same data is used to find out the association of health, employment and Unemployment performances with the GDP Per Capita.

GDP Per Capita and Health

Source: NITI Aayog health report and CSO

The index published by NITI Aayog was used to measure the performance on health across states. The Health indicator has a 77 percent association with GDP Per Capita . This is the highest association among the other socio economic indicators.

Source: Union Budgets
* Revised estimates

The health budget is around 65000 crores in 2019-20. In terms of trend , there has been a steady increase in the absolute budget from 2015-16. For the last three financial year the actual estimates are higher than the budget estimates

The share of health budget in the total budgetary allocation declined from 2.4% in 2011-12 to 1.7% in 2015-16. Since then it has been rising. This year it is at 2.3% of the central budget. The story is different if one looks into the share of actual estimates on the total spending. The share has been rising since 2014-15. It was 2.5% in 2017-18. The same was at 2,3% in 2018-19 (revised estimates). This year the share of health budget in the total budgetary allocation is 2.3% of the central budget.

Source: Union Budgets
*Revised estimates

GDP and Education

For education, the male and female literacy rates and the percentage of male and female attainment of secondary or above level of education are considered as performance measures. It is observed that percentage of attainment of secondary or above level of education has a high association with the per capita GDP as compared to the literacy rates. This is true for both male and female.

Source: Annual PLFS report, CSO data

The percentage of male attaining secondary or above education has a 76% association with the per capita GDP. The same is 73% of females. In terms of literacy the association was around 40% for males.

Source: Annual PLFS report and CSO

The education budget allocation is over 94,000 crores in 2019-20. This is 3.4% of the total central budget allocations. There has been an increase in the absolute allocation since 2017-18. In terms of actual estimates it is observed that there was a sharp decline in the percentage of actual spending out of the budgetary allocation amount from 2014-15 and this continued till 2016-17. 2017-18 show a more than 100% spending on education out of the budgetary allocation.

Source: Union Budgets
*Revised estimates

But the percentage of education allocation out of the total budget has seen a steady decline since 2014-15. There has been a slight increase in this year’s budget. The share of education hovered over 5% of the central budget till 2015-16. For the past three years this has hovered around 3.5%. The same is true with the percentage of actual estimates. The percentage of actual spending of education out of the total actual spending hovered over 4% till 2014-15.But there has been a steady decline on this since 2014-15. Now the same stood at 3.7% in 2017-18. Based on revised estimated for 2018-19, this declined further to 3.4%.

Source: Union Budgets
*Revised estimates

GDP and Unemployment

Unemployment rates is at a historical high as per the Annual PLFS report. In terms of association with per capita GDP it is observed that higher the unemployment rate lower is the GDP. The highest association is with urban unemployment for male. This is around -48%.

State wise Performance across Different Socio-Economic Parameters

In the recent months various government bodies have released data on different socio-economic parameters. The Annual PLFS report 2017-18 which focuses on employment scenario have been published in the end of May, 2019. This report not only talks about the employment-unemployment scenario across the country, it also gives a view on education attainment across individuals. The NITI Aayog has published the Healthy State Progressive India report on health index. The per capita GDP across various states of the country is provided by CSO. With all of this data available let us look into how major Indian states have performed across various socio -economic parameters.

Composite Index

IPD has created a composite index across major 18 states of the country, which in total account for 502 seats in Loksabha out of a total of 543 seats, based on the above mentioned data sources. Four important dimensions were considered for creating the composite index. The four dimensions are education, health, per capita NSDP and unemployment. The index ranges from 0 to 100, 100 being the best.

Source: Data from Annual PLFS ,2017-18, NITI Aayog Healthy State Progressive India report , Central Statistical Organisation, New Delhi

Maharashtra tops the list followed by Kerala and Gujarat. While Maharashtra has been consistent across all the four dimensions of the index, Kerala has out performed the other states in terms of its performance in education and health outcomes. Gujarat on the other hand had the lowest urban unemployment rate. Two of the most populous states of India; Bihar and Uttar Pradesh hold the bottom two position in terms of the composite index.

What has been the drivers for each of the dimensions of the composite index? Let us look into this.

Education

The Annual PLFS report gives the literacy rates for male and female separately across different states of the country. Also the percentage of male and female attaining different levels of education is reported. For the composite index, ranking of states based on literacy rate separately for male and female and the ranking of states based on percentage of people attaining secondary or above education separately for male and female is considered.

Source: Annual PLFS Report, 2017-18, May 2019

Kerala holds the top spot in three of the four measures of education with Maharashtra topping in terms of percentage of male attaining education above secondary level.

Source: Annual PLFS Report, 2017-18, May 2019

While Assam has one of the highest literacy rates for both male and female, it also has one of the lowest percentage of males attaining secondary education and above. The reverse is the case for Telangana.

Health

NITI Aayog published the Healthy State Progressive India report which gives the health index across states and union territories. This measure is used for the above mentioned composite index.

Source : Healthy State Progressive India report , NITI Aayog, June 2019

Similar to education, Kerala holds the top position in terms of the Health Index. The erstwhile economically backward states of Uttar Pradesh, Bihar and Odhisa hold the bottom three position.

Per Capita NSDP

The Central Statistical Organization reports the per capita NSDP for different states of India. For the composite index the per capita NSDP numbers as of 2016-17 has been used as the information for all the major 18 states were available.

Source : http://www.esopb.gov.in/Static/PDF/GSDP/Statewise-Data/StateWiseData.pdf

Haryana has the highest per capita GDP among the states followed by Maharashtra and Kerala. It needs to be noted that Kerala hold top position in education and health also. Maharashtra is also among the top states in terms of education and fourth in terms of health. Bihar and Uttar Pradesh have the lowest per capita NSDP among all the states.

Unemployment

The recently published Annual Periodic Labour Force Survey (PLFS), 2017-18 reports the unemployment rate for all states and union territories. As the overall unemployment rate has significantly increased, same phenomenon is witnessed across all states and union territories. Certain states have unemployment rates below the national average , while certain other states have unemployment rates higher than the national average. For the composite index rural and urban unemployment rates for both male and female separately has been considered.

Source : Annual PLFS Report, 2017-18, May 2019

Gujarat has the lowest unemployment rate in urban India for both male and female. Kerala on the other hand has the highest unemployment rate for both rural and urban female. Hatyana, which has the highest per capita NSDP reports to have one of the highest unemployment rate in rural India.

Source: Annual PLFS Report, 2017-18, May 2019

Budgetary Allocation Trends on Education and Health

The finance minister has tabled the budget in the Lok Sabha on 5th July, 2019. The allocation to different ministries and government projects has been announced.

Let us see how the trend has emerged in terms of budgetary allocation on education and health.

Source: Union Budgets, Government of India

The education budget allocation is over 94,000 crores in 2019-20. This is 3.4% of the total central budget allocations. There has been an increase in the absolute allocation since 2017-18. But the percentage of education allocation out of the total budget has seen a steady decline since 2014-15. There has been a slight increase in this year’s budget. The share of education hovered over 5% of the central budget till 2015-16. For the past three years this has hovered around 3.5%.

Source: Union Budgets, Government of India

The health budget is around 65000 crores in 2019-20. In terms of trend , there has been a steady increase in the absolute budget from 2015-16. The share of health budget in the total budgetary allocation declined from 2.4% in 2011-12 to 1.7% in 2015-16. Since then it has been rising. This year it is at 2.3% of the central budget.

How Budget 2019 handles the Immediate Challenges to the Economy? – A Perspective

In the run up to the Budget, 2019, a lot has been discussed around the major challenges in front of the Indian economy in the present scenario. Let us examine how the Finance Minister proposes to address these challenges.

WATER CRISIS

NITI Aayog reports suggest that India has been facing the biggest water crisis. Over 20 cities in India are anticipated to face a massive water crisis by 2020 and majority of the country faces a massive water crisis by 2030 as reported by many reports.

The Government of India aims to provide water to every household by 2024. Given this mission and the impending challenges in terms of the severe water crisis, in her maiden budget speech in the Parliament, Sitharaman highlighted that the government has formed a new Ministry to address all water issues- Jal Shakti, which will look at the management of water resources and drinking water supply in a holistic manner.The Ministry formed by integrated other existing Ministries – Water Resources and Ministry of Drinking water and sanitation would work with state governments to ensure Har Ghar Jal’ to all rural households by 2024.

In her budget speech, the finance minister mentioned that the government has identified as many as 1, 592 blocks in 256 districts which are facing acute water crisis and have reported over-exploitation of groundwater. Under the scheme the government will focus on rainwater harvesting and water conservation in 256 districts in the first phase and carry out other initiatives including renovation of traditional water bodies and tanks, reuse of water and recharge structures, watershed development and intensive afforestation. The second phase will begin on October 1 till November 30.

The budgetary allocation in this regard has been increased this year from 2018-19 period.  But it still stands depleted if compared to 2017-18. While in 2017-18, the planned outlay for the ministry was around Rs 23,938 crore, it has come down to only around Rs 20,016 crore only in 2019-20. In the interim year, the allocations were even poorer.

Source: Government of India (Union Budgets)

What this problem requires is more immediate action. The budget shows some direction. But the allocation seems to be less to focus constructively into this.

Unemployment

The recently released Annual PLFS report puts the unemployment rate at 6.1% , the highest in 45 years. The newly formed government created a high level committee to focus on unemployment. Job creation remains a major challenge in front of the government. The Union Budget mentions the word ‘jobs’ just two times and ’employment’ five times. While there is no direct employment generation scheme, if proposals made by finance minister Nirmala Sitharaman are implemented in spirit, and investments are made, there could be employment generation in the medium to long-run across sectors such as real estate, core infrastructure and food processing.

The Budget stressed on affordable housing and the creation of other infrastructure. Tax benefits announced on affordable housing has the potentiality to stimulate demand, and thereby, both construction and supply-related jobs.  The Minister announced the government would “support private entrepreneurship in driving value-addition to farmers’ produce from the field and for those from allied activities, like Bamboo and timber from the hedges and for generating renewable energy”. Dairying through cooperatives will also be encouraged by creating infrastructure for cattle feed manufacturing, milk procurement, processing and marketing.  This has a potentiality to generate jobs in the rural sector.

There has been specific focus in the SME and the MSME sectors. 350 crore rupees allocated for 2% interest subvention for all GST-registered MSMEs on fresh or incremental loan. Large-scale extensive reforms planned, government to create a platform for MSME payments. “Government payments to suppliers and contractors are a major source of cash flow, especially to SMEs and MSMEs. Investment in MSMEs will receive a big boost if these delays in payment are eliminated. Government will create a payment platform for MSMEs to enable filing of bills and payment thereof on the platform itself,” the Minister said. Along with these, there is the scheme where the MSMEs are supposed to get loans up to 1 crore within 59 minutes. Loans worth Rs. 350 crore already disbursed. All of these has a potentiality to create jobs in this sector.

The recapitalization of the PSUs and the measures taken with regard to NBFCs can lead to more capital for the private sector and can be a major boost up for more private investments. This can create more jobs in the private sector.

In terms of government jobs, Sitharaman has proposed for Rs. 50 lakh crore for Railway and certainly it will provide good opportunities for government jobs seekers youth. Finance minister Nirmala Sitharaman allocated Rs 60,000 crore for Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS) for the financial year 2019-20. In the last three financial years, the government has continued to increase its allocation towards the rural job scheme. In 2018-19, the government had spent Rs 61,000 crore in the scheme, while in Budget 2016-17, Rs 38, 500 crore was allocated to the scheme, which was later revised and ramped up by 23 percent to Rs 47,499 crore, while Rs 41,699 crore was spent during financial year 2015-16. This year we see a slight decline in the allocation than the actual amount spent in this scheme in 2018-19.

All of the above measures has the potentiality to generate new jobs in the market. But whether that is sufficient enough to address the massive unemployment situation is something that needs to be monitored. Given the severity of the scenario, a more direct and vast scale measure for ensuring job creation was expected.

The Annual PLFS report shows that the unemployment rate has been maximum for the higher educated people.

There can possibly be two probable situations:

  1. There is lack of job opportunities for educated people across the country
  2. The educated people are unemployable and needs more relevant skill sets for the job opportunities that are available.

It can be any of the above two possibilities or it can be a combination of both. If it is the former then there is a need to focus on creating optimal job opportunities for educated persons. If it the later then a serious focus needs to be given on the higher and technical education policy. More focus needs to be given on courses providing right skill level required for the job market.

The Finance Minister allocated ₹94,853.64 crore for education sector in 2019-20. Of the total ₹94,853. 64 crore education budget, ₹56, 536.63 crore has been pegged for the school sector and rest ₹38,317.01 crore has been allocated to the higher education. The Finance Minister allocated ₹94,853.64 crore for education sector in 2019-20. The funds allocated for higher education as a percentage of GDP increased from 1.36% in 2018-19 to 1.38% in 2019-20. The same for school education, saw a small decline from 2.04% in 2018-19 to 2.03% in 2019-20.

In an absolute level an increase of nearly ₹10,000 crore of what 2018-19 budget estimates had pegged for the sector. However a scheme to strengthen teacher training institutions, which had received an allocation of ₹488 crore last year, has been completely dropped this year. A scheme to incentivise girls to enroll in secondary education has also seen its Budget slashed, from almost ₹256 crore in last year’s revised estimates to ₹100 crore this year. In her budget speech, Finance Minister Nirmala Sitharaman focused on the draft NEP’s recommendations for research, quality and governance in higher education. Stating that India has the potential to become a hub for higher education, she proposed to start a “Study in India” programme to encourage foreign students to enroll in Indian higher educational institutions.

Another major concern that comes out from the Annual PLFS report, is the decline in the labour force participation rate(LFPR) specially for women. There has been measures announced in this budget to boost women empowerment. It will be worth seeing on how that impacts the LFPR of the women.

Slowdown in the Economy

India’s economy grew slower than expected to a 20-quarter low in the January-March period, dragging overall growth to a five-year low in FY 18-19. The provisional estimates released on 31st May showed that GDP grew at 5.8% in the 4th quarter of FY 18-19 as compared to 8.1% for the same quarter in FY 17-18. Moreover there was a decline from Q3, FY 18-19. Overall growth of FY 18-19 slummed to a five year low and was pegged at 6.8% as against 7.2% in the previous year. There has been a steady rise in the GDP growth rate from FY 12-13 till FY 16-17 when it was as high as 8.2%. The gross value added(GVA) grew at 6.6% compared to 6.9% in the previous year. The per capita growth of GDP was pegged at 5.7%.

GDP GROWTH RATE ACROSS 4 QUARTERS OF FY 18-19

The quarterly growth rate of agricultural sector was as low as -0.1% in Q4, FY 18-19 as against 6.5% for the same quarter in the previous year. This has been a major concern area. Agriculture is very much dependent on monsoon. Monsoon this year has shown the slowest movement in 12 years. This has happened mainly due to the onset of cyclone Vayu. Moreover a vast section of India has registered lower than normal rains in the month of June. So agriculture sector which has shown a negative growth as of quarter 4 of FY 18-19 remains a major reason to worry.

In terms of budgetary allocation,  agriculture & allied activities received the biggest push among all sectors compared to FY19. Against the Budget 2018-19 (revised) estimates of Rs 86,602 crore for agriculture and allied activities, Sitharaman’s Budget 2019-20 proposed to invest 1,51,518 crore in this sector. This comes about an increase of 75 per cent in budgetary allocation over interim budget. However a huge chunk of this allocation is expected to go towards the PM Kisan scheme. 75,000 crores are earmarked for the PM Kisan scheme. In the Interim Budget FY20, government announced PM Kisan scheme or the Pradhan Mantri Kisan Samman Nidhi Yojana (PM KISAN) with an objective of providing direct income support to farmers, pegged at Rs 6,000 per year to be paid in three installments. So if one takes out the amount pegged for doll then only 76,518 crores are earmarked for agriculture which is less than the budget estimtes of 2018-19 ( there was no PM-Kisan scheme then).

Sitharaman proposed setting up of 10,000 new Farmer Producer Organisations (FPOs) to ensure economies of scale for farmers over the next five years. She said the Modi government will work with state governments to see that farmers get fair price through electronic National Agriculture Market (e-NAM) that was launched in 2016. In her budget speech, Ms. Sitharaman said that the government would invest widely in agriculture infrastructure and support private entrepreneurship for value addition in the farm sector. She also stressed on “zero budget farming”, a practice which involves zero credit and reducing dependence on chemical fertilizers. 

Agricultural experts wished to see bold decision-making on rationalisation of food and fertiliser subsidies and cropping patterns. Sitharaman’s Budget for 2020 made no reference to mounting arrears of food subsidy. In the five years of the NDA 2 government, subsidy on urea was not touched. The Budget for 2020 again does not provide any road map for that. The FM mentioned zero based budget farming, which has been undertaken in some coastal districts of Andhra Pradesh. Without any reform in fertiliser subsidy regime, it is unrealistic to expect farmers to use less urea and switch over to organic farming. Several regions of India are reeling under drought and water stress has become one of the most pressing challenges for farming.  A focus on rain water harvesting in a massive scale perhaps is a answer to this problem. While this finds some mention in terms of using MGNREGA scheme to work on rain water harvesting, there is no major investment earmarked for this purpose. While focus on agri-infrastructure finds mention in the FM’s speech, the question remains on where will the money come up given that the allocation for agriculture actually reduced if the allocation on PM-Kisan is taken out. This government has set up a goal to double the farm income by 2022. But there is no concrete direction provided in this budget on how this can be achieved. Agriculture provides employment to over 60% of the citizens of our country. A more focused and thorough approach is required for ensuring the set goal is achieved.

One more reason for slowdown of the economy was attributed to the NBFC crisis and the lack of liquidity in the market. The Union Budget will partially guarantee high-quality pooled assets of non-banking financial companies (NBFCs) and the Reserve Bank of India (RBI) has opened an indirect liquidity window for the sector to aid banks to give funds to the sector, which is on the verge of collapse. NBFCs play “an extremely important role in sustaining consumption demand as well as capital formation in small and medium industrial segment”, Finance Minister Nirmala Sitharaman said in her maiden Budget speech. Therefore, NBFCs that are fundamentally sound should continue to get funding from banks and mutual funds, she said.

The FM proposed the government encourage public sector banks to buy high-rated pooled assets of up to Rs 1 trillion of financially sound NBFCs, for which the government will provide a one-time six-month partial credit guarantee for the first loss of up to 10 per cent. The banks can buy assets of NBFCs up to Rs 1 trillion during FY20. Moreover the Budget has given the RBI sweeping powers over housing finance companies (HFCs) and NBFCs, including the power to change the management at these firms. The Budget has relieved the National Housing Bank (NHB) of its regulatory powers over HFCs and handed them back to the RBI. Now how all of this will be impacting the NBFC sector and finally on the overall growth is to be seen.

There has been a lack of demand in the market as cited by some reports. There is a decline in auto sales figures. Overall the private consumption growth requires a major boost up. This budget does not directly address this issue. There is no significant tax deductions mentioned for the middle class apart from the affordable housing scheme. Moreover no concrete plan is mentioned on growing income of the farmers. Over and above there has been a two rupees increase in the prices of petrol and diesel. This increase will have a impact on prices of essential commodities as the cost of transportation is increased. The price of auto parts have also been increased. Hence there is a chance of more reduced demand. There has been some focus on electric vehicles. However on how much it will have a impact on generation demand in short to medium run remains questionable. There has been some indirect measures taken to generate demand by pumping more money in the PSUs and the focus on NBFCs. But the question remains on is it sufficient enough in the immediate run.

Conclusion

So in terms of all areas of challenges, the budget has adopted some measures to address them in a medium to long run. However the extent of focus and big push required for this is yet to be seen. While the intent is there, a more focused and constructive view is required for each of these major challenges especially in the immediate run.


 

Highlights of Budget 2019

Nirmala Sitharaman presented her first budget today in the parliament. Here are the key highlights of the Budget, 2019.

 Direct Taxation – Budget 2019 Highlights

  1. Interest deduction on housing loan under Section 80EEA increased by 1.5 lakh for home loans taken on self-occupied house property by 31/3/2020, houses with the cost of Rs 45 lacs will be eligible for this. 
  2. Interchangeability of PAN and Aadhar for ease and convenience of taxpayers Income Tax return can be filed using Aadhar Number
  3. To discourage cash payments TDS@ 2% on withdrawals exceeding 1Cr per annum from a bank account under a new section 194N.
  4. Surcharge for individuals having taxable income from Rs 2 crores to Rs 5 crores increased to 25% – FY 2019-20
  5. Surcharge for individuals having taxable income from Rs 5 crores to Rs 10 crores increased to 37% – FY 2019-20
  6. Proposal to give relief in levy of securities transaction tax
  7. Corporate tax worth 25% that is applicable to companies with an annual turn over Rs 250 crore will be applicable to the ones with an annual turnover of Rs 400 crore
  8. Section 35AD deduction extended to Li-On battery, Semi-conductor, Laptops, Fabrication & Photovolatic cells
  9. Additional income tax deduction of up to Rs. 1.5 lakhs is proposed on payment of interest on loan is taken to purchase electric vehicles under section 80EEB.
  10. Faceless and anonymous assessment system for income tax being rolled out this year in phases.

2. Infrastructure – Budget 2019 Highlights

  1. Focus on investment in infrastructure, national highways and aviation sectors
  2. The second phase of Bharat Mala to develop state highways
  3. A comprehensive restructuring of national highways will be taken up

3. Education – Budget 2019 Highlights

  1. National education policy to propose major changes in both secondary and higher education
  2. Swayam Initiative – Digital education to be promoted
  3. Greater focus on research and development – National Research Foundation to fund and promote research – pooling of research grants from various ministries and disbursing them, preventing duplication of research projects
  4. For the Youth – New national educational policy to transform the Indian education system
Source: Indiatvnews.com

4. Startup Development – Budget 2019 Highlights

  1. Government to introduce a host of exclusive programs for startups on DD News

5. Household – Budget 2019 Highlights

  1. Provision of housing, electricity, clean cooking facility, safe and adequate drinking water to all in rural India
  2. Encouragement of rainwater harvesting, groundwater recharge, and management of household wastewater for reuse in agriculture
  3. Har Ghar Jal – to all rural household by 2024
  4. 7 crore LPG connections delivered to rural households

6. Pension – Budget 2019 Highlights

1.Proposed pension benefit to 3 crore retail traders and shopkeepers whose annual turnover is up to Rs 1.5 crore  

7. MSME- Budget 2019 Highlights

  1. 350 crore rupees allocated for 2% interest subvention for all GST-registered MSMEs on fresh or incremental loans
  2. MSME: Large-scale extensive reforms planned, government to create a platform for MSME payments
  3. MSME to get loans up to 1 crore within 59 minutes. Loans worth Rs. 350 crore already disburse

8. Women Empowerment- Budget 2019 Highlights

  1. Committee to be formed with Public and Private stakeholders for gender equality: FM
  2. Every SHG Women having Jan Dhan Account – Rs. 5,000/- overdraft allowed: FM
  3. Loan up to 1 lakh under Mudra Scheme for Women entrepreneurs: FM

9. NRI- Budget 2019 Highlights

  1. Proposal for Issuance of Aadhar Card on arrival for NRIs with Indian Passports: FM
  2. Aadhaar card for NRI’s post arrival in India
  3. To increase NRI investment in Indian capital market – NRI portfolio scheme route and FPI route should merge

10. Budget – Railway Budget 2019 Highlights

  1. Railway infra would need an investment of 50 lakh crores between 2018 and 2030;
  2.  PPP  to be used to unleash faster development and delivery of passenger freight services
  3. Railway Station Modernisation will be launched this year.
  4. Indian Railways to be encouraged to invest more in urban and suburban regions
  5. 657KM of Metro Rail operational in the country.

11. Banking and Financial Sector – Budget 2019 Highlights

  1. Reforms will be taken to strengthen governance in Public Sector banks
  2. NPAs of commercial banks reduced by over 1 lach crores over last year
  3. Record Recovery of over 4lac crore with IBS
  4. NPAs of commercial banks reduced by over 1 lakh crore over last year
  5. After Consolidation of Public Sector Banks, now 70,000 Crore of Capital boost for credit improvement
  6. Government has smoothly carried out consolidation, reducing the number of PSBs by 8
  7. NBFCs – that are fundamentally sound, will get fundings from govt to a total of 1lakh crore during the current financial year
  8. RBI has limited regulatory Authorities, Now the Regulatory Authorities of RBI over NBFC will be placed
  9. Proposals for strengthening the regulatory authority of RBI over NBFCs – Debenture Redemption Reserve to be maintained
  10. Proposal to return regulatory authority from NHB to RBI!

12. Electric Vehicles – Budget 2019 Highlights

  1. Lower GST Rate from 12% to 5% on Electric vehicle and Additional Income Tax Deduction of 2.5 Lakh on Interest paid on loan taken to purchase an electric vehicle
  2. To make electric vehicles affordable, additional IT deduction on 1.5 lakh on interest paid on loan taken to purchase electric vehicles

13. Technology – Budget 2019 Highlights

  1. Solar storage batteries and chargers included in 35AD deduction: FM
  2. Program of mass scaling of LED Bulbs – Approx. 35 Crores of LED bulbs distribute
  3. Machines and robots to be deployed for scavenging
  4. Focus on VR, AI, Robotics training to youth to align India with the World

Items that will get costlier:

1. Gold and silver

2. Petrol and diesel

3. Imported books

4. Tiles

5. cashew kernels

6. vinyl flooring

7. auto parts

7. some synthetic rubber

8. digital and video recorder and CCTV camera

9. cigarettes, chewing tobacco, zarda and tobacco extracts and essence

10. Fully-imported cars

Items that will get cheaper:

1. Houses

2. Electric vehicles

3. Import of defense equipment, not manufactured in India

4. Raw and semi-finished leather

The Budgetary allocation across different heads are as under:

Source: Government of India

Summary of the Economic Survey -2019

Economic Survey reviews the developments in the Indian economy over the previous 12 months, summarizes the performance on major development programs, and highlights the policy initiatives of the government and the prospects of the economy in the short to medium term. The Finance Minister presented the economic survey, 2019 in the parliament today. The key highlights of the economic survey as per the Press Information Bureau, Government of India are:

  • Survey states that pathways for trickle-down opened up during the last five years; and benefits of growth and macroeconomic stability reached the bottom of the pyramid.
  • Survey states Private Investment as the Key Driver of Growth, Jobs, Exports and Demand
  • Using insights from behavioral economics to create an aspirational agenda for social change- 1. From ‘Beti Baco Beti Padhao’ to ‘BADLAV’ (Beti Aapki Dhan Lakshmi Aur Vijay Lakshmi). 2.From ‘Swachh Bharat’ to ‘Sundar Bharat’. 3.From ‘Give it up” for the LPG subsidy to ‘Think about the Subsidy’. 4. From ‘Tax evasion’ to ‘Tax compliance’.
  • Survey focuses on enabling MSMEs to grow for achieving greater profits, job creation and enhanced productivity.
  • Unshackling MSMEs and enabling them to grow by way of – Asunset clause of less than 10 years, with necessary grand-fathering, for all size-based incentives, Deregulating labor law restrictions to create significantly more jobs, as evident from Rajasthan. Re-calibrating Priority Sector Lending (PSL) guidelines for direct credit flow to young firms in high employment elastic sectors.
  • Survey also focuses on service sectors such as tourism, with high spillover effects on other sectors such as hotel & catering, transport, real estate, entertainment etc., for job creation.
  • Society’s optimal consumption of data is higher than ever given technological advances in gathering and storage of data.
  • As data of societal interest is generated by the people, data can be created as a public good within the legal framework of data privacy.
  • Government must intervene in creating data as a public good, especially of the poor and in social sectors.
  • Merging the distinct data sets held by the Government already would generate multiple benefits.
  • Productivity improvements of 25 percent in lower courts, 4 percent in High Courts and 18 percent in Supreme Court can clear backlog.
  • Survey proposes reduction in economic policy uncertainty by way of consistency of actual policy with forward guidance.
  • Quality assurance certification of processes in Government departments.
  • Sharp slowdown in population growth expected in next 2 decades. Most of India to enjoy demographic dividend while some states will transition to ageing societies by 2030s.
  • National Total Fertility Rate expected to be below replacement rate by 2021.
  • Working age population to grow by roughly 9.7 mn per year during 2021-31 and 4.2mn per year during 2031-41.  Significant decline to be witnessed in elementary school-going children (5- 14 age group) over next two decades.
  • States need to consolidate/merge schools to make them viable rather than build new ones.
  • Policy makers need to prepare for ageing by investing in health care and by increasing the retirement age in a phased manner.
  • 2.5 times increase in per capita energy consumption needed for India to increase its real per capita GDP by $5000 at 2010 prices, and enter the upper middle income group.
  • 4 times increase in per capita energy consumption needed for India to achieve 0.8 Human Development Index score.
  • India now stands at 4th in wind power, 5th in solar power and 5th in renewable power installed capacity.
  • Rs 50,000 crore saved and 108.28 million tonnes of CO2 emissions reduced by energy efficiency programmes in India.
  • Share of renewable (excluding hydro above 25 MW) in total electricity generation increased from 6% in 2014-15 to 10% in 2018-19.
  • Thermal power still plays a dominant role at 60% share.
  • Market share of electric cars only 0.06% in India while it is 2% in China and 39% in Norway.
  • Survey says that efficacy of MGNREGS increased with use of technology in streamlining it.
  • Significant reduction in delays in the payment of wages with adoption of NeFMS and DBT in MGNREGS.
  • Demand and supply of work under MGNREGS increased, especially in distressed districts.
  • Vulnerable sections of the society viz. women, SC and ST workforce increased under MGNREGS during economic distress.
  • Survey proposes a well-designed minimum wage system as a potent tool for protecting workers and alleviating poverty.
  • Present minimum wage system in India has 1,915 minimum wages for various scheduled job categories across states.
  • 1 in every 3 wage workers in India not protected by the minimum wage law.
  • Survey supports rationalization of minimum wages as proposed under the Code on Wages Bill.
  • Minimum wages to all employments/workers proposed by the Survey.
  • ‘National Floor Minimum Wage’ should be notified by the Central Government, varying across five geographical regions.
  • Minimum wages by states should be fixed at levels not lower than the ‘floor wage’.
  • Survey proposes a simple and enforceable Minimum Wage System using technology.
  • Traceable health benefits brought about by Swachh Bharat Mission (SBM).
  • 93.1% of the households have access to toilets.
  • 96.5% of those with access to toilets are using them in rural India.
  • 100% Individual Households Latrine (IHHL) Coverage in 30 states and UTs.
  • Financial savings from a household toilet exceed the financial costs to the household by 1.7 times on average and 2.4 times for poorest households.
  • Environmental and water management issues need to be incorporated in SBM for sustainable improvements in the long-term.

The survey highlights the state of the economy. Here is the summary:

  • Growth of GDP moderated to 6.8 per cent in 2018-19 from 7.2 per cent in 2017-18.
  • Inflation contained at 3.4 per cent in 2018-19.
  • Non-Performing Assets as percentage of Gross Advances reduced to 10.1 per cent at end December 2018 from 11.5 per cent at end March 2018.
  • Investment growth recovering since 2017-18
  • Current account deficit manageable at 2.1 percent of GDP.
  • Fiscal deficit of Central Government declined from 3.5 percent of GDP in 2017-18 to 3.4 percent in 2018-19.
  • Prospects of pickup in growth in 2019-20 on the back of further increase in private investment and acceleration in consumption.
  • The public investments in social infrastructure like education, health, housing and connectivity is critical for inclusive development.
  • Health: increased to 1.5 per cent in 2018-19 from 1.2 per cent in 2014-15.
  • Education: increased from 2.8 per cent to 3 per cent during this period.
  • Gross Value Added (GVA) in agriculture was at 2.9 per cent in 2018-19.
  • Women’s participation in agriculture increased to 13.9 per cent in 2015-16 from 11.7 per cent in 2005-06 and their concentration is highest (28 per cent) among small and marginal farmers.
  • Overall Index of Eight Core Industries registered a growth rate of 4.3 percent in 2018-19.
  • Road construction grew @ 30 km per day in 2018-19 compared to 12 km per day in 2014-15.
  • Rail freight and passenger traffic grew by 5.33 per cent and 0.64 per cent respectively in 2018-19 as compared to 2017-18.
  • Total telephone connections in India touched 118.34 crore in 2018-19
  • The installed capacity of electricity has increased to 3, 56,100 MW in 2019 from 3, 44,002 MW in 2018.
  • The services sector growth declined marginally to 7.5 per cent in 2018-19 from 8.1 per cent in 2017-18.
  • Services share in employment is 34 per cent in 2017.

GDP Growth Rate of India

India’s economy grew slower than expected to a 20-quarter low in the January-March period, dragging overall growth to a five-year low in FY 18-19. The provisional estimates released on 31st May showed that GDP grew at 5.8% in the 4th quarter of FY 18-19 as compared to 8.1% for the same quarter in FY 17-18. Moreover there was a decline from Q3, FY 18-19.

GDP GROWTH RATE ACROSS 4 QUARTERS OF FY 18-19

Overall growth of FY 18-19 slummed to a five year low and was pegged at 6.8% as against 7.2% in the previous year. There has been a steady rise in the GDP growth rate from FY 12-13 till FY 16-17 when it was as high as 8.2%. The gross value added(GVA) grew at 6.6% compared to 6.9% in the previous year. The per capita growth of GDP was pegged at 5.7%.

Quarter wise GVA Growth Rate

The quarterly growth rate for GVA was as high as 7.9% as of quarter 4, FY 17-18. This went down to 5.7% as of the same quarter in FY 18-19. What we see is a inverted V curve of the GVA growth rate quarter on quarter. Indian economy showed a steady growth quarter on quarter in FY 17-18 as per the GVA growth rate. But the trend has been completely reverse in FY 18-19.

How the growth story spans out if one focuses on the sector wise growth rate across the major 8 sectors? 5 of the 8 sectors show a decline in the year on year growth rate in FY 18-19 as compared to the previous financial year.

Yearly growth rate comparison across sectors

Mining & quarrying registered the slowest growth of 1.3% while the Construction sector registered the highest growth of 8.7% among all the 8 sectors in FY 18-19. The growth rate for agricultural sector showed a decline from 5% in FY 17-18 to 2.9% in FY 18-19. The comparison of quarter on quarter growth shows a worrying pattern. The construction sector which had shown an increase in the year on year growth in FY 18-19 as compared to the previous year has shown a severe decline in growth rate of GVA in Q4 of FY 18-19 as compared to the previous quarter (Q3, FY 18-19).

The agricultural sector showed a steady decline in growth rate across quarters in FY 18-19. The same has been true for Manufacturing sector as well. These are the sectors which are the major source of employment for unskilled and semi skilled workforce. There has been a significant argument given in favour of rise of jobs of Ola and Uber cab drivers and the increase in the number of delivery boys of Swiggy or Zomato. But if one look at the growth rate of Trade, Hotels, Transport & Communications and services related to broadcasting sector, there has been a steady decline in the growth rate across the quarters in FY 18-19.

This becomes a huge worry, more so because the Annual PLFS report, 2017-18, which was released recently showed a massive increase in unemployment rate. The unemployment rate was as high as 6.1%. There is a negative correlation between the unemployment rate and the GDP growth rate. If one compares the average GDP growth rate for the last 5 years with the unemployment rate as per the Annual PLFS report across states, it is found that the correlation is as high as -46.4% with the unemployment rate of urban males and as high as -38% with the unemployment rate of urban females. The negative correlation holds true with the rural unemployment rates for both male and female. It stands at – 10.7% and -12.9% respectively for male and female. This will remain as one of the major challenge faced by the newly formed government. The government has already formed task forces focusing into GDP growth and unemployment.

Quarter wise GVA Growth rate comparison across sectors

The quarterly growth rate of agricultural sector was as low as -0.1% in Q4, FY 18-19 as against 6.5% for the same quarter in the previous year. This has been a major concern area. Agriculture is very much dependent on monsoon. Monsoon this year has shown the slowest movement in 12 years. This has happened mainly due to the onset of cyclone Vayu. Moreover a vast section of India has registered lower than normal rains in the month of June. So agriculture sector which has shown a negative growth as of quarter 4 of FY 18-19 remains a major reason to worry. This will remain a major challenge for Nirmala Sitharaman as she presents her first budget in few days. There has to be meausres taken with long term planning in mind. A huge investment on irrigation is the need of the hour.

So in a nutshell, Indian economy shows the early signs of slowdown and with the rising unemployment and slow movement of monsoon, the future seems to be challenging. The new finance minister has a huge set of concerns in front of her as she presents her first budget. It will be worth seeing, how she address all the issues and what policies are adopted as remedy measure.

Unemployment Trends across Major States of India

The recently published Annual Periodic Labour Force Survey (PLFS), 2017-18 reports the unemployment rate for all states and union territories. As the overall unemployment rate has significantly increased, same phenomenon is witnessed across all states and union territories. Certain states have unemployment rates below the national average , while certain other states have unemployment rates higher than the national average

IPD focuses into the pattern that emerge for 18 major states of India which in total account for 502 seats in Loksabha out of a total of 543 seats. The unemployment rates for male and female in rural and urban sector is looked into separately for each of these 18 states.

SOURCE: ANNUAL PLFS REPORT, 2017-18

For rural males majority of the states ( 10 out of 18) has unemployment rates above the national average. But the pattern reverses for rural females and urban males where majority of the states has lower unemployment rates compared to the national average. For urban females equal number of states have unemployment rates higher / lower than the national average. Gujarat has the lowest unemployment rates for both urban male and female while Kerala has the highest unemployment rate for females in both urban and rural India among the major states.

SOURCE: ANNUAL PLFS REPORT, 2017-18

Andhra Pradesh, Karnataka, Rajasthan and West Bengal has unemployment rates lower than the national average for all the four segments ( both male and female in rural and urban India). Telengana and Odhisa on the other hand has unemployment rate higher than the national average for all the four categories. Maharashtra, Chattisgarh, Gujarat and Madhya Pradesh has unemployment rates lower than the national average for 3 of the four categories.

While the unemployment rate has witnessed a significant increase overall, there are differences in the pattern of unemployment rates for different segments. But one needs to acknowledge that unemployment rates are higher even when looked in absolute terms for each of the states.

Job creation and skill development is a joint responsibility of the central and the state governments. In India’s federal structure state plays a important role and the success of any policy measure is widely dependent on the cooperation between state governments and the central government. IPD sincerely hopes that all state governments and the central government works closely with each other and lead to a reduction in unemployment rates for each states and union territories. This only can lead to sustainable economic growth of the country.