Need 8% growth for economy to reach $5 trillion in 5 years: Survey

NEW DELHI: Amid gathering talk of an economic slowdown, the Modi 2.0 government’s first economic report card on Thursday made a strong case for accelerating private investment to create jobs and drive demand, and identified labour law reforms, higher tax compliance and lower interest rates as key focus areas to take the economy to the next level.

The two-volume Economic Survey, tabled by finance minister Nirmala Sitharaman a day before she presents her maiden Budget, lays out chief economic adviser Krishnamurthy Subramanian’s blueprint for a $5 trillion economy by 2024-25, at the core of which is annual growth rate of 8%.

“With micro and macro-economic foundations laid over the last five years, the economy is ready to shift gears so that economic growth, jobs and exports can be pushed up to the next level,” said Subramanian, main author of the Survey, his first.



Survey sidesteps slowdown focuses on key growth areas

For the current financial year, the Survey has estimated economic growth at 7%, marginally higher than last year’s 6.8%, which was a five-year low. Subramanian was conservative in his estimate on growth but did not succumb to the commentary that growth rate would moderate further.

Side-stepping the current slowdown, his plan focused on some key areas including raising exports, policies to encourage micro, small and medium enterprises to be job creators, removing policy uncertainty, tackling pending cases in courts, and raising investment and savings. It also highlighted the importance of data in devising public policies.

Like some of his illustrious predecessors, Subramanian invoked behavioural economics of nudge which he said could be used to drive social change and policies.

For improving tax compliance, the survey recommended several steps – from special diplomatic-type lanes at immigration counters and boarding privileges for highest taxpayers, to naming important buildings, monuments, roads, trains, initiatives, schools, universities, hospitals and airports after them. According to Subramanian, such steps would help propagate the social norm that “paying taxes honestly is honourable”.

While some of the suggestions on labour law reform and revamping MSME policy may not be new, his recommendations on the use of “nudge theory”, and real-time data for devising policies is in keeping with the Survey’s tradition of exploring innovative ideas to drive growth and productivity. The document has proposed a National Dashboard for a transparent minimum wages regime, which has become a complex web of nearly 2,000 rates.

Subramanian did some plain speaking on the deficit, saying the government will have to find resources to fund its social sector programmes and initiatives such as Ayushman Bharat and PM-KISAN without hurting the fiscal deficit target.

Like his predecessor Arvind Subramanian, Krishnamurthy Subramanian cited several examples from the Chinese economic miracle to drive home the point on raising investment, savings rates and creating jobs. He referred to town and village enterprises in China which have emerged as engines of rapid growth. He also used the Chinese experience to debunk the theory that higher investment may not lead to jobs.