The latest annual Economic Survey, the first one to be presented by the Chief Economic Adviser Krishnamurthy V Subramanian, is dedicated to achieving the goal of making India a $5 trillion economy by 2025. For this purpose, the whole document geared towards providing the “strategic blueprint for fructifying this vision”. At the outset, the Economic Survey states that India’s real GDP needs to grow at 8% each year to achieve this goal. This level of economic growth, in turn, can only be sustained by a “virtuous cycle” of savings, investment and exports catalysed and supported by a favourable demographic phase. How can it be achieved? The key element in the overall scheme is the level of investment in the economy. In particular, it is the level of private investment that the ES underscores as the “key driver” that will push demand, create capacity, increase labour productivity, create jobs and allow creative destruction. The Survey quotes economic research wherein by averaging across 62 episodes of growth spurts from 1960 to 2011 among non-OECD countries, it has been shown that productivity growth across these episodes is combined with a rapidly rising investment rate and an even more steeply increasing savings rate. The Survey also cautions that while it is often claimed that investment displaces jobs, this remains true only when viewed within the silo of a specific activity. When examined across the entire value chain, capital investment fosters job creation as the production of capital goods, research & development and supply chains generate jobs. What is required for the ‘virtuous cycle’? By presenting data as a public good, emphasising legal reform, ensuring policy consistency, and encouraging behaviour change using principles of behavioural economics, the Survey aims to enable a self-sustaining virtuous cycle. According to the Survey, the key ingredients include a focus on policies that nourish MSMEs to create more jobs and become more productive, reduce the cost of capital, and rationalise the risk-return trade-off for investments.
