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Overview & Key Points +

Brief Descriptions of Key Areas

THE ECONOMIC SURVEY: VOLUME 2

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 2014-15, India can get back on an investment-led path.

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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% + 15.8% 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 (2015-20) – supporting Mfg & Services •  WTO 10th 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 2.1 + 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% + 15.8% GTR growth desired

3.  Cooperative Federalism •  Greater devolution post 14th FFC

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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 14th 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

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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

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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

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Ch 4: External Sector Overview: Key Points: Mostly repetition • CAD Discussion – CAD ok, Debt ok + Foreign Investment • Box 4.1 – FTP 2015-2020 important •  + Box 4.2 - 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 (2014-15) to $71 bn (2015-16) •  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 $ 351.5 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

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Trade Deficit

FTP 2015-20

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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

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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

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WPI Vs. CPI

Agriculture & Food Management Share of agriculture in employment is 48.9% (2011-12) whereas the GDP contribution has been 17.4% (2014-15) •  12th FYP has envisaged an average growth of 4%

•  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

Year Growth 2012-13 1.5% 2013-14 4.2% 2014-15 -0.2% 2015-16 1.1%

Productivity / Crop Yield

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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 - 194.6

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

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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 130th 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

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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

2012-13 38.6 2013-14 34.7 2014-15 34.2

Where Savings Come From

Gross Savings

Private

Households (Financial and

Physical)

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.

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Industrial Performance •  Industrial growth was 5.9% in 2014-15.

•  As per AE it could be 7.3% for 2015-16

•  The IIP attained a growth of 3.1% in 2015-16 •  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 4th 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

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Make In India

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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

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UDAY: Ujwal Assurance Discom Yojana

2004-05 2013-14 Losses Rs 11,699 Cr Rs 71,271 Cr Borrowings Rs 1,06,509 Cr Rs 4,59,145 Cr

UDAY (contd…) The features are •  Optional for states •  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

UDAY (contd…) •  Targets:

•  AT&C losses must be brought down to 15% by 2018-19 •  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)

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LED Program in 100 cities •  Has two components

•  DELP •  SLNP

URBAN Development

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URBAN Development

Bullet Trains?

Ch 7: Services Sector Overview: Key Points: 1.  Key driver for world (1/3rd) and Indian Economy (66.1%)

•  FEE high, FDI high (max & 50%+ of total FDI into India). •  51% of global FDI •  Box 7.1 - 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

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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 2014-15 FDI in services sector has grown by a whopping 70% •  The trend has continued in 2015-16 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% (2014-15) compare to 4% in the previous year

•  The GoI has taken various measure to promote service exports •  SEIS scheme under new FTP 2015-20 •  GES (Global Exhibition Scheme) & Services Conclave have been organized

to augment exports of various services •  Initiatives in tourism and shipping

Post-crisis Pre-crisis Service Exports (CAGR) 7.5% 30.1% Service Imports (CAGR) 6.5% 23.6%

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

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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

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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 8.3 •  60 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

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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.

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Ch 9: Social Infra, Emp and Human Dev 4.  Poverty

•  Tendulkar methodology – declined to 21.9% in 2011-12

5.  Women •  Hidden contribution – to be captured via TUSs •  GDI – 0.525 •  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, 2012-11) •  Which reported unemployment rate of 2.7% for India as a whole.

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Measures to Counter Unemployment 1.   Deen Dayal Upadhyaya Grameen Kaushalya Yojana (DDU-GKY): A placement-

linked 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 2015 5.  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 2014-15 (RE) was 7 % of GDP while it was 6.5% during 2013-14.

•  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

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Social Infrastructure Education Expenditure on education has been around 3% of GDP during 2008-09 to

2014-15. The state of TN has the maximum expenditure on education for 2013-14 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 2015-16 (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…

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