India must continue to focus on Economic Growth to Alleviate Poverty: Economic Survey 2020-21

Recommendations of Economic Survey 2020-21

Approx Read Time: 6 min

In News:

  • As per the Economic Survey, India’s GDP is projected to record a growth of 11% in 2021-22.
  • The estimate reflects the growth potential, with the continued normalization in economic activities due to the rollout of vaccines.
  • The Economic Survey (ES) also makes several recommendations to support and give a boost to the economy.

Recommendations:

  • The Economic Survey has advised the government to continue with structural reforms and significant privatization of state-owned companies.

Focus on expansionary fiscal policy:
  • The survey expects the government to pursue an expansionary fiscal policy to sustain recovery.
    1. Fiscal policy refers to the use of government spending and tax policies to influence economic conditions.
    2. Governments use an expansionary fiscal policy to increase government spending or to cut taxes in order to increase the supply of money in the economy.
  • It also indicates that a well-designed expansionary fiscal policy can contribute to better economic outcomes in two ways.
  • First, it can boost potential growth with multi-year public investment that raise productivity. Second, it can reduce the risk of Indian economy falling into a low wage-growth trap, like Japan.
  • Further, at a time of excessive risk aversion (avoidance) in the private sector, as seen during an economic crisis, risk-taking via public investment can boost private investment.

Focus on economic growth to reduce poverty:
  • The ES states that the policy objective of focusing on inequality may not apply in the Indian context, due to India’s higher potential rate of economic growth and the higher absolute levels of poverty.
  • Unlike in advanced economies, economic growth has a far greater impact on poverty reduction than inequality.
  • Thus, taking into account, India’s stage of development, India must continue to focus on economic growth to lift the poor out of poverty by expanding the overall size of the economy.
  • The survey further noted that redistribution of economic benefits (among people) is only feasible in a developing economy if the size of the economy grows.
  • The ES also gave examples of growth stories of India and China, that have shown a significant reduction in poverty due to high economic growth.

Recommendations of Economic Survey 2020-21
Recommendations of Economic Survey 2020-21
Focus on boosting innovation:
  • India’s overall innovation ranking is much lower than expected. Thus, there is a need to increase innovation in the country, to push the country to a higher growth path and make it the third largest economy.
  • This requires boosting Gross Expenditure on R&D (GERD) from 0.7 per cent of GDP currently, to at least the average level of GERD of over 2 percent in other top ten economies. 
  • As per the ES, the government sector contributes a disproportionately large share in total GERD at three times the average of other large economies. However, the business sector’s contribution to GERD is amongst the lowest in India.
  • Thus, as per the survey the business sector contribution to total GERD should increase from the current 37% to close to 68%.
  • Key focus areas for boosting innovation performance include – improvement of ease of resolving insolvency, ease of starting a business, political and operational stability.

Withdrawal of regulatory forbearance:
  • The ES suggests that an Asset Quality Review exercise must be conducted immediately after the forbearance is withdrawn. Asset quality review is the evaluation of an asset to measure the credit risk associated with it (e.g. loans, bonds etc.)
  • The ES notes that to address the economic challenges due to the pandemic, financial regulators across the world, including India have adopted regulatory forbearance.   
  • Regulatory forbearance for banks involved relaxing the norms for restructuring assets, where restructured assets were no longer required to be classified as Non-Performing Assets.
  • Emergency measures such as forbearance prevent the spread of failures in the financial sector to the real sector and avoids a deepening of the crisis.
  • The ES, however, points that forbearance is an emergency measure that should be discontinued when the economy starts recovering and should not be continued for years.
  • Furthermore, the ES suggests that legal infrastructure for recovery of loans needs to be strengthened.

Recommendations of Economic Survey 2020-21
Recommendations of Economic Survey 2020-21
Simplification of regulatory processes:
  • The ES states that administrative processes in India have significant amount of procedural delays and other regulatory complexities, which makes them inefficient and difficult for all stake holders.
  • It further observes that it is not possible to have regulations that can account for all the uncertainties in the world and all possible outcomes.
  • The evidence shows that India over-regulates the economy, which results in regulations being ineffective even with relatively good compliance with processes.
  • As per the ES, the solution is to avoid complex regulatory processes and have simple regulations combined with transparent decision-making process.
  • It further notes that where ever such regulatory processes have been simplified, ease of doing business has improved significantly.
  • For example, the new Government e-Marketplace (GeM portal) has increased the transparency in pricing in government procurement.
  • This has not only reduced the cost of procurement but has also made it easier for honest government officials to take decisions.

Also Read: How Mount Everest got 3 feet higher, endorsed by both Nepal and China

Like us on Facebook: UPSC Current Affairs

Learned Something??

Please rate this article..

Average rating 0 / 5. Vote count: 0

No votes so far! Be the first to rate this post.

Leave a Reply