From Thalinomics to GDP: Survey moots counter-cyclic fiscal measures

The ES 2020 suggests that the dispensation may need to relax fiscal deficit for FY20 to revive growth

Nirmala Sitharaman
Finance Minister Nirmala Sitharaman announced that the stimulus package is intended to facilitate the revival of the economy, in the wake of the nationwide COVID-19 lockdown. Representative Photo: PTI

The Economic Survey 2020 (ES 2020), a detailed report card on the economic performance of the country, was tabled in Parliament by Finance Minister Nirmala Sitharaman on Friday (January 31), the first day of the Budget session.

The survey pegs India’s GDP growth for FY 21 at 6-6.5 per cent, acknowledging the fact that there would be multiple challenges on the fiscal front. FY 20 growth is expected to be 5%. Last year, the Economic Survey had projected a 7% GDP growth for 2019-20.

The ES 2020 suggests that the dispensation may need to relax fiscal deficit for FY20 to revive growth. It emphasizes the need to adopt counter-cyclical fiscal measures to boost consumption/demand. A counter-cyclical fiscal policy refers to a strategy by the government to counter boom or bust (recession) through fiscal measures. So,  countercyclical policies are ones that cool down the economy when it is on an upswing and stimulate it during downturns. (The opposite of counter-cyclical is pro-cyclical).

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The ES 2019-20, prepared by Chief Economic Adviser (CEA) Krishnamurthy Subramaniam, has advocated what could arguably be called a ‘Pro Market Outlook.’ The CEA leans on economist Adam Smith’s invisible hand theory to suggest enormous benefits accruing from enabling the invisible hand of the markets.

Wealth creation indeed seems to be the panacea for all ills plaguing the Indian economy according to the survey. If one goes by the first chapter of the survey, it is clear that ‘Trickle Effect’ is what the CEA alludes to when he went on to quote, “Those who create wealth are indeed India’s wealth.”

Grassroots wealth creation

According to the survey, grassroots entrepreneurship is not just driven by necessity. A 10 per cent increase in registration of new firms in a district yields a 1.8 per cent increase in Gross District Domestic Product (GDDP).

The survey goes on to say that entrepreneurship at the bottom of the administrative pyramid – a district – has a significant impact on wealth creation at the grassroots level. This impact of entrepreneurial activity on GDDP is maximal for the manufacturing and services sectors.

Pro Vs Crony business

The survey found that government’s intervention, though well intended, often ended up undermining the ability of the markets to support wealth creation and led to outcomes opposite to those intended.

Creating jobs

The survey said the creation of labour-intensive industries can help optimal use of resources, considering demographic dividend to be India’s biggest resource at present. Thus, creation of labour-intensive industries can create 4 crore well-paid jobs by the year 2025. It also speculates the job growth up to 8 crore by 2030.

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It pointed out that ‘Assemble in India for the World’ can be integrated into Make in India to create these markets. This will further increase India’s export market share in the world exports. It can reach to about 3.5 per cent by 2025 and further to 6 per cent by 2030, said the report.

Ease of doing business

The survey also mentioned the steps to be taken to improve India’s ranking on the Ease of Doing Business Index. It quotes Kautilya’s Arthashtra which states, “The King (i.e., the State) shall promote trade and commerce by setting up trade routes by land and water, and establishing market towns and ports. There are a few issues faced by businessmen while starting business, registering property, paying taxes and enforcing contracts.” To summarise, the government is suggested to give economic freedom to smoothen business operations.

Also, streamlining of logistics is another important issue that needs to be addressed to improve ease of doing business. India has jumped 79 positions to grab 63rd spot on World Bank’s Doing Business Ranking in 2019.

Taking stock

The country completed the 50th anniversary of nationalisation of banks this year. These public sector banks (PSBs) cover 70 per cent of the Indian banking system.

Incentivisation and Employee stock Ownership Plan (ESOP) is one measure suggested to improve the performance of the banking sector in the country.

Another novel suggestion is to use big data, artificial intelligence, and machine learning in credit decision, especially in cases of large borrowers.

All the data should be used as per a legal framework. It is also cited that the top five economies in the world have always been aptly supported by their banking sector. Thus, India needs the same support from its banking sector to achieve the mission of a 5-trillion economy.

Privatization, aggressive divestment 

As per ES 2020, the government must pursue a policy of aggressive divestment. By presenting a comparative analysis of the before-after performance of 11 central public sector enterprises (CPSEs) that had undergone strategic disinvestment from 1999-2000 to 2003-04, the survey said the net worth, net profit, return on assets (ROA), return on equity (ROE), gross revenue, net profit margin, sales growth and gross profit per employee of the privatized CPSEs, on an average, had improved significantly in the post privatization period compared to peer firms. The analysis clearly affirms that disinvestment (through the strategic sale) of CPSEs unlocks the potential of these enterprises to create wealth.

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The survey proposes aggressive disinvestment to bring in higher profitability, promote efficiency, increase competitiveness and to promote professionalism in management in the selected CPSEs for which the Cabinet has given in-principle approval.

What is very interesting is the proposed holding structure for CPSEs, a new entity or a holding company which would act as an instrument towards divestment.


ES 2020 puts up the concept of Thalinomics to easily relate economics to the common man of India. It uses data from 25 states/UTs from April 2006 to October 2019 to gauge the price of a Thali one pays per day. The survey also claims that the price of vegeterian thali has decreased significantly since 2015-16 due to policy reforms introduced by the government. The prices have increased in 2019-20.

The average gain due to price moderation after 2015-16 is said to ₹10,887 for vegetarian and ₹11,787 for non-vegetarian household.