THE ECONOMIC SURVEY: VOLUME 2

Transcription

1 THE ECONOMIC SURVEY: VOLUME 2 Overview & Key Points + Brief Descriptions of Key Areas Faculty: Riku Sayuj Byju s Classes Ch 1: State of the Economy Overview: Key Ideas: 1. Dependency on global growth Global headwinds commodity prices, slow growth, volatile exchange rates => Risk averse investor behavior + exports and imports have declined => CAD down 2. Indian Growth in consumption-driven Investment-led Growth path needed 3. Financial Sector is under stress Box 1.1 India s has been an exceptional case where economic growth in the post crisis period was propelled by strengthening of consumption growth, thus defying the secular trends of declining share of consumption. The investment share in India declined much more than the average decline in the lower-middle income countries. Perhaps with the strengthening of the gradual improvement in corporate investment growth, evidenced by the national accounts for , India can get back on an investment-led path. 1

2 Ch 1: State of the Economy Overview: Key Points: 1. India fastest growing economy with 7.6% growth India s contribution to global growth ~14% India s share in world GDP increased to 7% in PPP terms Consumption driven though... (NX, I/GCF lagging) Sectors: Agri low, Services robust, Mfg accelerating 2. Public Finance: Fiscal Federalism + Consolidation FD to be contained at 3.9% % GTR growth desired 3. Monetary Policy: Moderate inflation = Expansionary Stance CPI inside targets, WPI negative Liquidity conditions can be looser J Bank Credit Growth sluggish + Inadequate MP pass-through + NPAs + Low I Ch 1: State of the Economy Overview: Key Points: 4. Trade Policy: Declining merchandise Trade & Corrective measures New FTP ( ) supporting Mfg & Services WTO 10 th Ministerial Nairobi LDC issues; Agri - SSM, Public stockholding, abolishing export subsidies; TFA Low CAD, Robust FDI, NRI Deposits, Reserves; External debt 1.7% Tourism Moderating growth in FTA and FEE Concerns about Chinese adjustment 5. Rest: Respective Chapters (Climate Change, Sectors, Human Dev, etc) Ch 2: Public Finance Overview: Key Points: 1. Fiscal Consolidation India s contribution to global growth ~14% Tax Reforms Box Box 2.2 = indirect tax uptick Quality of Exp Health, Edu, Infra + Plan vs Non-Plan disc. Reduce Subsidies - Box 2.3 Deficit 3.9% - mostly domestic financing (98%) and market based General Govt (States+Center) performance FD of 6.3% Pay Commission + OROP = pressure added 2. Public Investment to make up for Lack of Pvt. I FD to be contained at 3.9% % GTR growth desired 3. Cooperative Federalism Greater devolution post 14 th FFC 2

3 The +ve fiscal outcome is because of: 1. Improved tax buoyancy 2. Prudent expenditure management 3. Declining oil prices 4. Decline in the major subsidies 5. Increased tax devolution to the states in-line with recommendations of 14 th FC 6. Achieving highest increase in the capital expenditure Ch 2: Public Finance Ch 3: Monetary Management Overview: Key Points: 1. Lowering Inflation = Easing of MP 125 bps cut Jan to Sept 2015 Pay Commission + OROP = pressure added Liquidity: WACR above Repo => Tight! MP Pass-through & Structure rigidities SSS competition, PSB rates, base rates determined on AC and not on MC. 2. GFC = Volatile + Concern about China 3. Banking Credit = Sluggish + Asset Quality bad & Growing Indebtedness (TBS challenge) Time deposits growth slowing down = most imp source of bank funding SCB performance subdued Capital market - okay 3

4 Deposit Trends Credit Trend - Decline The decline is because of Incomplete monetary transmission Unwillingness on the part of banks to increase credit outflow Worsening corporate balance sheet More attractive interest rates for borrowers in bond market Sectoral Flow of Credit 4

5 Liquidity Conditions Gross NPAs have increased to 5.1% of the total advances in September 2015 Stressed assets are at 14% Banks require Rs 1,80,000 cr of capital GoI has announced that it would provide it Rs 70,000 cr in this year s as well as subsequent budgets Some of The Reforms/Policies 5

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7 Ch 4: External Sector Overview: Key Points: Mostly repetition CAD Discussion CAD ok, Debt ok + Foreign Investment Box 4.1 FTP important + Box Trade Facilitation Measures WTO Nairobi Negotiations Details LDC + SSM + Food Stockholding + Export subsidies RTA discussion Box 4.3 TPP implications for India + Box 4.4 External Debt Steps needed BOP Situation Despite the reduction of merchandise trade the BoP situation has remained stable Trade deficit has declined: From $74 bn ( ) to $71 bn ( ) Some of the features observed are There was net outflow of FPI Inflow of FDI Inflow of NRI deposits Drop in oil prices Foreign Exchange Reserves were at US $ bn (as of Feb 2016) FPI Reforms: Points Limits to be announced/fixed in value of rupees Limits on G-securities will be increased in phases to 5% of outstanding stock by march 2018 Aggregate FPI investments in any central government security would be capped at 20% These reforms are expected to open up room for additional investment of Rs 1200 bn in central government securities by march 2018 Over and above the existing limit of Rs 1535 bn. ECBs have been classified into three categories Medium term foreign currency denominated ECB Long term foreign currency denominated ECB Indian rupee denominated ECB 7

8 Trade Deficit FTP

9 The Nairobi Package Public stockholding for food security purposes Special Safeguard Mechanism (SSM) for developing countries Commitment to abolish export subsidies for farm exports particularly from the developed countries Measures related to Cotton Preferential treatment to LDCs in the area of services The criteria for determining whether exports from LDCs may benefit from trade preferences External Debt 9

10 Ch 5: Agriculture & Food Management Overview: Key Points: 1. Lowering Inflation = Easing of MP Pulses spiked, protein slight high WPI & CPI growing wedge (food & fuel) 2. Declining growth in Agri => need for transformation: 4% growth target for Agri if India is to grow at 8% 1. Productivity 2. Irrigations Technology 60% is rainfall dependent.. So bad monsoon = bad agri More crop per drop.. IPU (Irrigation potential utilized) is low MGNREGA, PMKSY, MI tech 3. Efficient Use of Inputs Seeds, fertilizer, water, pesticides, credit (NWR), extension services All in input, crop ad region neutral way! DBT in PDS also + Inputs 4. Allied sectors: Horti, Dairy, Livestock, etc 5. Agri-marketing NAM, Trade Policy, WTO CPI & WPI 10

11 WPI Vs. CPI Agriculture & Food Management Share of agriculture in employment is 48.9% ( ) whereas the GDP contribution has been 17.4% ( ) 12 th FYP has envisaged an average growth of 4% Year Growth % % % % Reasons for lower growth: 66% of cultivable land is dependent on monsoon Two successive failures of monsoons Expansion of irrigation and its efficiency Volatility in the market prices Distortion in the cropping patterns Productivity / Crop Yield 11

12 How to Increase Productivity? Increase in the share of irrigated areas Efficient use and suitable pricing of water Seed development to obtain new better varieties of seeds Mechanization of operations of agriculture addressing the concerns of GM crops Efficient use of fertilizers and pesticides Shifting to DBT in fertilizers and rationalization of subsidies in agriculture (JAM) Credit access to farmers Horticulture Some Extra Facts (for Prelims) India is the largest producer of the milk India houses the second highest undernourished people million (15.2% of the population). To counter the situation GoI has introduced various schemes such as PDS, NFSA, ICDS, Annapurna, Antyodaya etc The GoI decides the MSPs based on the recommendations given by CACP Since 2011, export of rice and wheat has been permitted Export of cotton is free without an restrictions 12

13 Ch 6: Industry & Infra Performance Overview: Key Points: 1. Mfg propping up Industry growth (5.9%) (IIP 3.1) MII, EoDB, Startup India, Digital India, Smart Cities, National E-Governance Plan, e-biz portal, etc. FDI limits being raised; FIPB limit raised to 3000 Crore MoEFC Online clearances.. Labour Market Reforms Competitive Federalism World Banks Ease of Doing Business Index India is 130 th rank now Sector wise: Steel, Aluminum, etc. read highlighted lines GCF in Industry has declined (34.2%) Credit growth slowed 5.3% BOX 6.1 MAKE IN INDIA + NMP 2011 BOX 6.2 Ease of Doing Business Measures 13

14 Gross Capital Formation Of the total production, part is consumed and whatever is left out is referred to it as savings. This could be either in Public or Private sector. Whatever is invested back from this is referred to as capital formation This ratio is one of the indicators of health of the economy YEAR GCF Where Savings Come From Private Households (Financial and Physical) Gross Savings Companies Public Ch 6: Industry & Infra Performance Overview: Key Points: 2. Infra focus crucial! NIIF to provide equity support (National Inv and Infra Fund) UDAY for DISCOMs Credit growth slowed 2.5% National LED programme, Smart Grid Mission, COAL Focus, etc. Box 6.4 Petro Sector v.imp to understand. Renewable Energy: Initiatives Railways: initiatives, High speed project, etc.; Roads Bharatmala etc Other Sectors 3. MSME Many new schemes UAM, ASPIRE, etc. Startup India again 4. FDI: Higher Focus 60%+ From Singapore and Mauritius 70% FDI flow to Delhi, Haryana, Maharashtra, Karnataka, TN, Gujarat, AP. 14

15 Industrial Performance Industrial growth was 5.9% in As per AE it could be 7.3% for The IIP attained a growth of 3.1% in The index of eight core industries grew by 1.9% Some sectors like electricity, coal, fertilizer, cement had a +ve growth whereas steel and aluminum had a ve growth Due to stagnancy in the global demand, the export of steel into India has increased India is the 4 th largest producer Growth of credit to the industrial sector as slowed down MSME Sector Initiatives Udyog Aadhaar Memorandum (UAM): Notified in September 2015 under section 8 of the MSME Development Act 2006 MSME entrepreneurs just need to file an online entrepreneurs memorandum to instantly get unique Udyog Aadhaar Number (UAN) The information sought is on self-certification basis and no supporting documents are required Employment Exchange for Industries: To facilitate match making between prospective job seekers and employers Launched on June 15, 2015 Framework for Revival and Rehabilitation of MSMEs Notified in May 2015 Banks have to constitute a Committee for Distressed MSME enterprises at zonal or district level to prepare a Corrective Action Plan (CAP) for these units A scheme for Promoting Innovation and Rural Entrepreneurs (ASPIRE): Launched on March 16, 2015 Objective of setting up a network of technology centres and incubation centres to accelerate entrepreneurship and promote start-ups for innovation and entrepreneurship in rural and agriculture based industry 15

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17 Startup Policy Startup Policy Measures Towards: Ease of Doing Business Process of applying for IL and IEM has been made online e-biz portal has been launched which has integrated 20 services Notification has been issued by DGFT to limit the number of documents required for export or import to 3 each MoHA has agreed to grant security clearances within 12 weeks Reforms in FDI sector and the defence goods with dual use have been de-licensed 17

18 UDAY: Ujwal Assurance Discom Yojana Losses Rs 11,699 Cr Rs 71,271 Cr Borrowings Rs 1,06,509 Cr Rs 4,59,145 Cr The features are Optional for states UDAY (contd ) State government to take up 75% of the debt of the discoms (50% in first year and 25% in the second year) The state government can issue bonds in the market Future losses to be taken in a graded manner Banks to stop issuing advances for discoms to finance their losses Targets: UDAY (contd ) AT&C losses must be brought down to 15% by The gap between average cost and tariff must be bridged Benefits to states: Receive additional benefits from the central government Additional/priority funding through certain schemes Supply of additional coal at specified prices Procurement of low cost power So far 12 states have signed up (optional) Worry for the states - increase in the fiscal deficit 8.5% (combined) and 4.8% (states) 18

19 Has two components DELP SLNP LED Program in 100 cities URBAN Development 19

20 URBAN Development Bullet Trains? Ch 7: Services Sector Overview: Key Points: 1. Key driver for world (1/3 rd ) and Indian Economy (66.1%) FEE high, FDI high (max & 50%+ of total FDI into India). 51% of global FDI Box WTO and Services Trade Post-crisis slower; although service contributes the highest to GDP, service tax contributions to overall tax collections are low 2. Regional Disparities Delhi tops services GSDP, Then Maharashtra. 3. Tourism A Major engine of Service growth, FEE, employment Employment supported by sector 9.4% of total employment India s ITA share 0.7% globally; FTA growth fell to 4.5% and FEE to 2.8% E-TV for 113 countries and 16 airports (e-tourist Visa) Visa fee slabs now + Swadesh Darshan + PRASAD 4. Shipping: in stormy waters Baltic Dry Index at a low of 290 India a leading shipbreaking destination: but sector costs rising Coastal shipping & IWT to be developed! 5. Other Sectors Real Estate, Internal Trade (with Retail), Postal, etc Box 7.2: Suggestions in Policy 20

21 Service Sector: Salient Features Has remained the most vibrant sector in-terms of contribution to national and state incomes, trade flows, FDI inflows, employment etc As per a report by ILO - job creation in the coming years will mainly in the services sector Is the most attractive field for inflow of FDI In FDI in services sector has grown by a whopping 70% The trend has continued in and for the first seven months it has garnered around 74% GoI has made significant FDI policy changes in the recent times Various caps have been revised Limit of FIPB has been increased etc India s Services Trade Service exports grew from $16.8 bn (2001) to $155.6 bn (2014) India s share of global exports is 3.2% where as share of merchandise exports is 1.7% With volatile global conditions and weak global demand, the service exports grew at 4.1% ( ) compare to 4% in the previous year Post-crisis Pre-crisis Service Exports (CAGR) 7.5% 30.1% Service Imports (CAGR) 6.5% 23.6% The GoI has taken various measure to promote service exports SEIS scheme under new FTP GES (Global Exhibition Scheme) & Services Conclave have been organized to augment exports of various services Initiatives in tourism and shipping Tourism & Medical Tourism Tourism not only contributes to the accumulation of forex reserves but also generates employment India s share of ITA is 0.7% India s share of ITR is 1.6% The growth in ITA and ITR s is decelerating because of drop in the number of tourists from high spending tourist originating from countries such as France, UK, Japan etc GoI has taken various initiative to promote tourism such as PRASAD scheme, e-tvs, Swadeshi Darshan scheme etc 21

22 E-Tourist Visa Suggestions e-tv window must be increased to 180 days and the visa must be extended to 60 days. Multiple point entry must be allowed Development tourism infrastructure through PPP and by channelizing CSR Support SMEs in tourism sector Need to address port infrastructure on war footing Promoting medical tourism under Brand India rather than doing it separately Rapid immigration clearances for medical tourists 22

23 Ch 8: Climate Change & Sustainable Development Overview: Key Points: 1. Paris Agreement - UNFCCC 2 degrees temp rise limit target. Bottom-up approach Box 8.1 Salient Features Focus on Climate Finance + Tech Transfer Even if INDCs met above target not met L 2. New SDG (replacing the MDGs) New set of 17 SDGs 3. India s INDCs and other domestic initiatives In historical and per capita terms India is not a major contributor Fuel is largest sector in terms of emissions. Box GW (25 current) wind and 100 GW (5 current) solar power target by 2022 NAPCC, SAPCC, Coal Cess (100 per tonne) and NCEF, etc. 4. Green Finance Box 8.1 All above will require huge finances India NCEF on Polluter Pays Principle GCF, CTF largest Carbon Trading! under CDM of KP with CERs EU ETS major 23

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26 Ch 9: Social Infra, Emp and Human Dev Overview: Key Points: 1. Education 3% of GDP ed exp.., 2% health exp both stagnant Enrollment in govt schools declining, reading levels bad Teacher training not good quality 2. Health JSY, JSSY early interventions! Mission Indradhanush immunizations! = MDR, NCDs Swachh Bharat sanitation, latrines 3. Employability Demographic Dividend is a reality 63.3% is economically active population (working age) Employment growth in organized sector = 2% LFPR = 52.5; rural > urban! Female LFPR very low second lowest in South Asia, after Pakistan. NRLM, MGNAREGA, etc. Skill gaps NSDC, NSQF, STAR, etc. 26

27 Ch 9: Social Infra, Emp and Human Dev 4. Poverty Tendulkar methodology declined to 21.9% in Women Hidden contribution to be captured via TUSs GDI Legal system failure dowry death cases Address socially, culturally and also economically! 6. Human Development Report - HDR India ranks 130 of 188 based on HDI (0.609) lowest among BRICS Employment The proportion of economically active population (15-59 years) has increased from 57.7% to 63.3% during 1991 to 2013 The employment growth in the organized sector (Public and Private combined) increased by 2% in 2012 over 2011 The annual growth rate of employment for the private sector was 4.5 % in 2012 over 2011 whereas the public sector registered a marginal growth of 0.4 % in the same year. The total unemployment rate reported is 4.9% as per the Labour Bureau Survey. These figures are much higher than the all India unemployment rates of the National Sample Survey Office (NSSO, ) Which reported unemployment rate of 2.7% for India as a whole. 27

28 Measures to Counter Unemployment 1. Deen Dayal Upadhyaya Grameen Kaushalya Yojana (DDU-GKY): A placementlinked skill development scheme for rural youth who are poor, as a skilling component of the National Rural Livelihood Mission (NRLM) has also been launched. 2. The National Policy on Skill Development and Entrepreneurship: Aims to ensure Skilling on a large Scale at a Speed with high Standards and promote a culture of innovation based entrepreneurship to ensure sustainable livelihoods. 3. The Pradhan Mantri Kaushal Vikas Yojana (PMKVY): Proposes to cover 24 lakh Indian youth with meaningful, industry relevant, Skill Based Training 4. Payment of Bonus (Amendment) Act National Career Services Portal 6. Shram Suvidha Portal 7. Universal Account Number Facility Social Infrastructure The social infrastructure scenario in the country reflects gaps in access to education, health and housing amenities The total expenditure on Social Services including Education, Health, Social Security, Nutrition, Welfare of SC/ST/OBC etc. during (RE) was 7 % of GDP while it was 6.5% during Education As per ASER (Annual Survey of Education Report) 2014, there is a sharp fall in the number of students of class V who could read a textbook of class II The gender parity has been achieved between girls and boys in all the levels of education (except higher education) GoI has introduced DBT in scholarships 28

29 Social Infrastructure Education Expenditure on education has been around 3% of GDP during to The state of TN has the maximum expenditure on education for Four challenges a) Increasing enrolments b) Improving quality of education c) Improving professional quality of teachers d) Gender parity in education The government has launched Digital Gender Atlas for Advancing Girl s Education Social Infrastructure Health The expenditure on health as a percentage of total expenditure on social services = 19.5% in (BE). Under five mortality has declined from 126 in 1990 to 49 in 2013 As per NFHS-4, the percentage of children fully immunized in the age group (12-23 months) is above 80 per cent in Sikkim and West Bengal. All the 12 states surveyed have more than 50 per cent children fully immunized. Rashtriya Bal Swasthya Karyakram (RBSK) and Rashtriya Kishor Swasthya Karyakram (RKSK) have been launched in 2013 and 2014 respectively Challenges-immunization coverage of children, health of pregnant women, declining role of public health delivery systems and the lack of adequate skilled personnel etc Recommendations To strengthen the delivery of public health services and infrastructure facilities, both public investments and leveraging of private investments are necessary. The adoption of technology platforms and innovative models by leveraging JAM can improve the efficiency service delivery Inclusive growth in India requires bridging gaps in educational outcomes and improved health attainments across the population 29

30 ALL THE BEST! From everyone at Byju s Classes! 30