Notes from the Economic Survey

ThumbnailThe Economic Survey is an annual document presented by the Ministry of Finance. It reviews developments in the Indian economy over the previous 12 months. It highlights recent policies of the government and the prospects of the economy in the short to medium term. It is presented to both houses of Parliament during Budget Session.

The Economic Survey is an annual document presented by the Ministry of Finance. It reviews developments in the Indian economy over the previous 12 months. It highlights recent policies of the government and the prospects of the economy in the short to medium term. It is presented to both houses of Parliament during Budget Session.

This year, the government presented a second or a mid-year economic survey for the year 2017-18 in August. It highlights new factors that the economy faces since the last such exercise in February.

The first volume of the Survey in February had predicted a GDP growth of between 6.75-7.5 percent. It had hoped that the exports sector will revive after several months of continuous decrease in exports resulting in destruction of lakhs of jobs and bankruptcy of small and medium producers engaged in exports. It also gave signals that the decrease in consumption of goods and services due to demonetization will soon reverse.

The mid-year survey reveals that these predictions have failed.

It has listed several factors that shows that the economic crisis still continues. Among these factors are growing indebtedness in power and telecom industries, increasing risk in bank loans, agricultural stress, demonetization and negative impact of implementation of GST.

Recent figures on the performance of the Indian economy in the April-June quarter of this year, released after the Economic Survey II, have further confirmed that growth in many sectors of the economy has been below predictions.

Growth rates in different sectors of economy

The Survey admits that there is a severe crisis in the industrial sector, particularly in the manufacturing and construction sub-sectors. Industrial performance has declined from 8.8% during 2015-16 to 5.6% in 2016-17 (See chart). Within the industrial sector, the growth rates in mining, manufacturing and construction sub-sectors have all decreased.

The steep decline in construction is accompanied by decline in cement and steel demand. It has led to massive job losses.

The Survey points out that the credit from the banks to industry in 2016-17 has contracted by 1.6%. This reduced lending has in turn slowed down the Gross Fixed Capital Formation (GFCF), i.e. the amount of capital plowed back by the capitalist from profits earned into production. The GFCF has slowed down t0 2.4% in 2016-17 as compared to 6.5% last year. The fact that investment has slowed down tremendously, is a reflection of the continuing economic crisis.

In the manufacturing sector, the telecom and power sectors are facing many problems.

In the power sector, the capacity for power generation far exceeds demand. Private sector thermal power capacity has increased tremendously in recent years when the government came up with the Ujwal DISCOM Assurance Yojana (UDAY) which assured power generation companies of several handouts. The average plant load in thermal sector has reduced to 60% making most of them unviable. There are many plants which are only partially constructed. The monopolies in the power sector have taken massive loans from the nationalised banks, and most of them have become “Non Performing Assets”.

In the telecom sector, again due to technology improvement, telecom prices have fallen resulting in unviable operations for many incumbents. The debt of these companies has increased to Rs 1.5 lakh crore. The implication is that in this sector too, thousands of workers will be rendered jobless and the loss made by these companies will be shifted onto the shoulders of working people.

The Survey highlights the agrarian stress reflected in lower prices for farm produce and reduction in incomes of farm households. It points out that real farm revenues from arhar and moong crops declined by 10 and 28 percent respectively this year. In Madhya Pradesh a sizeable percentage of wheat harvested was sold below Minimum Support Price revealing that the public procurement system is being slowly dismantled by the government.

Overall value of exports fell 15.5% in 2015-16 as revealed by the Survey. In 2016-17, exports increased marginally by 5.3%. But since this is an increase over a smaller base the previous year, it is clear that job losses in the export sector is continuing. Exports of drugs, textiles and leather products declined even further.

While the Survey does not provide a clear picture of the direct negative effects of demonetization on economic growth, it is evident from the figures given above that it has caused massive job losses in the export, manufacturing & construction sectors. Small and medium producers in various sectors, including agriculture, have been rendered bankrupt.

The Survey estimates that an amount of Rs 2.7 lakh crores is required to provide loan waivers to indebted farmers across India. Instead of admitting the necessity for allocating this amount to prevent more farmers from becoming bankrupt and committing suicides, the Survey argues that this will put a further strain on the fiscal deficit of states.

At the same time, the Survey expects that the RBI will resolve the banking crisis, caused by loan defaulting capitalists, by writing off some debts, restructuring other debts, capitalizing banks with tax payers money and scaling down operations of “weak” banks.

Consumer survey-1
RBI survey-2

The serious crisis in several sectors of the Indian economy detailed by the Survey finds reflection in a survey carried out by RBI in May of this year. The survey obtained households’ perceptions about the employment scenario, among other things, and was conducted by the RBI in six metropolitan cities of Bengaluru, Chennai, Hyderabad, Kolkata and New Delhi. 39.2% of the respondents said it had worsened. The percentage of people saying that the employment situation has worsened is now at the highest level in the last four years (except last December, at the time of the demonetisation exercise, when it was at the same level).

In summary, the Survey points out that the severe economic crisis will continue and possibly exacerbate further. The steps that the central government is taking to overcome the crisis will lead to the further deepening of the crisis in terms of loss of jobs, reduction in consumption of goods, increased stressed assets in banks and increased taxes.


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