“During the last five years, India’s economy has performed well.” So begins the first Economic Survey of Prime Minister Narendra Modi’s second tenure, written by Chief Economic Adviser KV Subramanian and his team.

The document avoids the unbridled optimism of the first Survey of Modi’s previous tenure, put together by the previous adviser Arvind Subramanian, who said at the time that India was at “a historic moment of opportunity to propel India on to a double-digit growth trajectory”. In case, it needs to be said, India did not achieve that trajectory and Subramanian most recently questioned whether the figures he was looking at were accurate.

They survey document also avoids the bombast of the Bharatiya Janata Party’s 2019 election campaign, which seemed to suggest that India’s economy had already taken off, even though indicators everywhere – including from the finance ministry – made it clear that the economy was facing a slowdown.

Blue sky thinking

KV Subramanian faces the tough task of working around a set target. Modi began his new tenure saying he would turn India into a $5-trillion economy by 2024-2025, from $2.8 trillion now. This means Subramanian’s focus had to be on attempting to achieve that.

In the preface to the survey, Subramanian writes that his team has been guided by “blue sky thinking... an unfettered approach in thinking about the appropriate economic model for India”.

The document is full of suggestions for things that the government can do, such as using “nudges” to drive behaviour, a concept that comes from behavioural economics. One example of this is to try and make taxpaying more “honourable” by publicly recognising the highest taxpayers and giving them advantages like priority boarding on aircraft and, if they’ve been on that last for decades, naming parks and monuments after them.

The survey pushes the government to look more specifically at small enterprises that are young and have the potential to grow large, rather than treating all such companies similarly. It includes a section that is bound to raise the hackles of those concerned about data privacy, since it speaks of linking all the information that government has about citizens and then even monetising those databases by offering them up to private companies.

Key driver

But the core of the blueprint is simple: India needs to achieve 8% GDP growth every year for the next five years if it is to reach the $5 trillion target. Official Indian figures – which are disputed – pegged the GDP growth rate for 2018-’19 at 6.8%, and the survey predicts that the 2019-20 figure will be 7%. Over Modi’s five years, the official figures recorded an average of 7.6%.

How does India get to an average of 8%? Through “a virtuous cycle of savings, investment and exports catalysed and supported by a favourable demographic phase... Investment, especially private investment, is the ‘key driver’ that drives demand, creates capacity, increases labour productivity, introduces new technology, allows creative destruction, and generates jobs.”

All of this turns up in Volume 1 of the survey, where Subramanian and his team have the opportunity to offer some big ideas to the government, albeit nothing on the scale of his predecessor who used the document to pitch a Universal Basic Income.

But it is in Volume 2 that things start to look a little different. For example, the survey makes it clear that private investment has to be the “key driver” of the economy for it to grow – essentially making it clear that India cannot simply depend on government spending or consumption. Yet the current government’s record with investment isn’t great, as this chart shows:

The survey claims that the decline in investment, which began in 2011-’12, has bottomed out and “green shoots in the investment activity appear to be taking hold as also seen in the pickup in credit growth to industry”. But considering the government’s record on this, the hope that investment will pick up enough to drive 8% GDP growth every year seems highly optimistic, with the added expectation that there will not be any major economic shocks.

Challenging year

It is pertinent to note that the document does not engage with the criticisms of GDP calculation raised by the previous chief economic adviser and many others over the last few years.

After all the Blue Sky Thinking of the first volume, Volume 2 deals the blows

. First it pegs the GDP growth for this year at a modest 7%.

Then it lists out all the fiscal challenges for the coming year:

  • Apprehensions of slowing growth
  • A shortfall in Goods and Services Tax
  • Expanded PM-Kisan and Ayushmaan Bharat will cost the government more
  • US sanctions on oil import will have an impact on India’s subsidy bill and current account
  • The Fifteenth Finance Commission’s report likely to recommend more tax devolution to states

In other words, settle in for a difficult year, and hope that investment will somehow perk up despite a “bleak” global economy.