From exuberant optimism and ambitious goals to a more nuanced, grounded reality — it has been an eventful four years for the Economic Survey and its primary author. What used to be a drab tome that didn’t excite or seek to engage with the discerning observer of the Indian economy got a makeover when, first, Kaushik Basu and, then, Raghuram Rajan became Chief Economic Advisers. But under Arvind Subramanian, the survey was elevated to an altogether different level as it introduced new concepts such as “Twin Balance Sheet (TBS) problem” and the “JAM agenda” to describe both threats and opportunities in the Indian policymaking arena.
TBS was a reference to stressed assets as reflected in balance sheets of banks and corporates, JAM an acronym for Jan Dhan, Aadhaar and Mobile as digital platforms for more efficient service delivery.
Yet, the hope manifest in Subramanian’s first survey for 2014-15 — two months after the BJP’s record win — has progressively given way to recognition of political-economy realities in the Modi government.
Sample this opening line to the 2014-15 survey: “As the new government presents its full-year budget, a momentous opportunity awaits. India has reached a sweet spot – rare in the history of nations – in which it could finally be launched on a double-digit medium-term growth trajectory”.
“Factor markets such as those for labour, land, and capital, however, remained largely unreformed. This has proved to be a constraint for growth and employment generation,” the Economic Survey 2014-15 said advocating “factor market reform needs to be an immediate priority for the government”.
But the latest survey underscores how the economy is still struggling to get past the legacy of “crony socialism” to a market-based capitalist economy despite the massive mandate to the Government.
“So, one might say that India had moved from “crony socialism to stigmatized capitalism.” It is that zeitgeist (or Maahaul) of stigmatized capitalism – an accumulated legacy inherited by the government – that made policy reforms so difficult and makes the recent progress in addressing the Twin Balance Sheet challenge noteworthy,” says Economic Survey 2017-18. Trust “stigmatised capitalism” to be the reason the federal government could not push through any ambitious reforms in land and labour sectors despite survey’s bullish push in the first year.
The 2014-15 survey also talked about how the political mandate for reform enjoyed by the Modi government along with a benign external environment (read low oil prices), had allowed for “a persistent, encompassing and creative incrementalism” that could “culminate to Big Bang reforms”.
Among these reforms was what it termed as the “JAM number trinity” – leveraging Jan Dhan bank accounts, Aadhaar unique identification and the Mobile phone to replace open-ended subsidies with targeted cash-based transfers.
That was, of course, a period when the world economy was still grappling with the after-effects of the 2008 financial meltdown. India, on the other hand, saw its growth rate pick up from 5.4% and 6.1% in 2012-13 and 2013-14 (the last two years of the previous UPA regime) to 7.2% in 2014-15 and 7.9% in 2015-16.
The 2015-16 survey estimated the country’s medium-term growth potential at “somewhere between 8 and 10 per cent”, while maintaining that “inflation, the fiscal deficit, and the current account deficit have all declined, rendering India a relative haven of macroeconomic stability in these turbulent times”.
But the 2015-16 survey also stressed on the necessity for “a recalibration of expectations”. And that was informed by an analysis of the TBS problem. The reference here was to the bad loans on the assets side of banks and the corresponding unsustainable debts on the liabilities in corporate balance sheets. “By now, it is clear that the TBS problem is the major impediment to private investment, and thereby to a full-fledged economic recovery,” the survey stated. It was a prescient observation – to which the Modi government’s attention was, unfortunately, drawn a little too late.
The 2016-17 survey was written just after the Modi government had taken the step of withdrawing all existing Rs 500 and Rs 1,000 denomination currency notes from circulation. Subramanian, by all reliable accounts, was not privy to the decision.
The tone in that year’s survey was also relatively downbeat. It recognised the “short-term costs” of demonetisation and “deflationary tendencies” weighing on the economy, along with a call for the opportunities created by the “sweet spot” highlighted in the earlier surveys to “be seized and not allowed to recede”.
The 2016-17 survey also kicked off a lively debate on the idea of a Universal Basic Income (UBI) to guarantee every individual a certain minimum cash support to cover basic needs. This particularly chapter was structured in the form of a conversation with Mahatma Gandhi on an idea “whose time has come perhaps not for immediate implementation, but at least for serious public deliberation”.
In the current year’s survey – which could well be Subramanian’s last – the earlier buoyancy and idealism are missing. One reason could be the fact that India was the only major economy in the world to have registered a growth slowdown in 2017, even as most other countries have emerged out of the 2008 crisis.
Yet, the survey conveys hope about the TBS problem finding resolution through the new bankruptcy law and the recapitalisation package for public sector banks, the Goods Services Tax regime stabilizing and growth picking up (after plunging to 6.1% in 2016-17) on the back of a synchronised global economic recovery.
This, even as Subramanian, at a presser after unveiling of the survey on Monday, conceded that he had “underestimated” the impact of the TBS.
Another shift in the mood is obvious in the survey’s acknowledgment of Indian economy’s temporary “decoupling” (latest Economic Survey) from the global economy from its assertion of being “entwined” with the world economy in 2015-16 Economic Survey. “If the world economy lurches into crisis or slides into further weakness, India’s growth will be seriously affected, for the correlation between global and Indian growth has been growing dramatically,” the Economic Survey 2015-16 had said.
“Until early 2016, India’s growth had been accelerating when growth in other countries was decelerating. But then the converse happened. The world economy embarked on a synchronous recovery but India’s GDP growth – and indeed a number of other indicators such as industrial production, credit, and investment – decelerated,” says the latest survey suggesting how things did not go as expected.
The mood in the latest survey is best summarised in a quote of one of Subramanian’s favourite economists John Maynard Keynes carried in the opening chapter of this year’s survey: “The inevitable never happens. It’s the unexpected always”.