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Economic Survey Volume 02 HighlightsChapter 01: State of the EconomySavings rate: 31% (historic peak was 37% in 2007)Savings breakdown: Public: 2%, Corporate: 11%, Households: 18% (of which physical: 10%, and financial: only 8%)Recent trend has been increase in physical component of househols savings => bad for the economyCapital formation (net): 32.5% (new series)Public: 8%, Private: 23.5% => Gap in public sector savings and investments is massiveNeed to raise household financial savings to lower the savings-investment gapCurrently, net capital inflows account for 1.5% of GDP, covering the difference between savings (31%) and investments (32.5%)Also, 60% of all new capital investments are in construction (only 35% in machinery, 5% in IPR products); while construction has high linkages, it doesn’t increase the productive capacity of the economy Factor shares according to new series: 18% (Agriculture), 32% (Industry), and 50% (Services), v/s 14%, 26%, and 60% (old series)New base change methodology of GDP has led to very surpising growth rates for various sectors and for the economy as a whole. This can be ascribed to data revisions, as also more comprehensive coverage of corporate sector because of use of new MCA21 databaseManufacturing growth also appears higher because trade carried out by manufacturing companies is now classified under manufacturing, as against services beforeValue addition is lowest in manufacturing; highest in agricultureGovernment Schemes for fiscal consolidation:Modified DBT (PAHAL)New domestic gas pricing policyDeregulation of diesel pricesFiscal deficit (2013): 4.5%Revenue deficit: 3.2%CAD declined to 2% of GDP; capital inflows last year were in excess of CAD financing requirement and hence led to accretion of forex reservesExternal debt to GDP ratio is 23%; maturity profile of India’s external debt shows that 80% of this is long term debt (good)Agriculture, over the last decade, has grown at 2.5% p.a., and during 2007-12 at 4.1%. This has been largely driven by high price inflation, and is clearly not sustainable or desirableThere are wide inter-state yield differences; even the best performing states have yields much lower than other countries. Given that area can hardly be increased, need to improve yields for agri growthOnly 35% area is irrigated => need to improve Need to create a national common market for agricultural commoditiesEnd exempting user charges for electricity and waterFMC should be strengthened to ensure efficient price discovery to farmers and enabling them to hedge price riskNeed investment in R&D, education, extension, fertilizers, testing labs, and warehousing and cold storageChapter 02: Public FinanceTax-GDP ratio is around 10.5%; expenditure-GDP ratio is around 14%Direct taxes: 5.7% of GDP; Indirect taxes: 4.8%In recent years, share of indirect taxes has been growing, mainly because of a growing share of service taxesTax foregone on account of exepmtions under corporate income tax was around Rs. 69,000 crore; need to be rationalizedSubsidy bill was 2% of GDP (25% of all non-plan expenditure)- main items are food, fertilizer, and petroleum subsidy bill. With DBT, diesel deregulation etc., atleast the petroleum component is likely to declineGovernment debt accounts for around 40% of GDP (+ 10% other liabilities = total government liabilities account for 50% of GDP)95% of this debt is internal => good80% is long maturity => good Interest payments alone are 3% of GDPChapter 03: Monetary Management and Financial IntermediationStressed advances account for 11% of total advances => asset quality of PSBs is under stressOver half of all stressed loans come from 5 sectors: infrastructure, iron and steel, textiles, mining, and aviationRBI has taken 3 steps to deal with worsening asset quality for PSBs:Issued guidelines on early recognition of financial distress, and prompt steps for resolution for various kinds of advancesIssued guidelines to bring flexibility to project loans in infra and industryTightened the norms for Asset Reconstruction Companies to strengthen recoveryFinancial Inclusion:Banking penetration improved from 35% (2013) to 53% (2015); but 70% of new accounts opened under PMJDY are dormant (zero balance accounts)PMJDY: aims at providing no-frills bank accounts, financial literacy, and access to credit and insurance; beneficiaries get a RuPay card, and an in-built accident insurance coverNew bank licenses have been issues => more competitionPayment banks and Small Finance Banks have been set upGovernment has allowed PSBs to raise money from capital markets by diluting government’s share to as low as 52%, in a phased manner based on their capital positionInsurance penetration is only 4% (3%: life, 1%: non-life); 2 key steps taken:Empowering IRDA furtherEnhancing FDI cap from 26% to 49%Pensions: Swavalamban Scheme, a co-contributory pension scheme launched in 2010 for unorganized sector workers, is now open to those citizens of India who are not a part of any provident fund schemes. Chapter 04: External SectorCurrently, net capital inflows account for 1.5% of GDP, covering the difference between savings (31%) and investments (32.5%)India’s share in global merchandise exports improved to 1.7%, and imports to 2.5%, from around 0.5% in 1991, and 1% in 2004 (1% each)Merchandise trade as proportion of GDP: 42% (30% in 2004)Merchandise Exports: 17% of GDPExport basket: Manufactured goods (64%), Crude and petroleum products: 20%, Primary products (agriculture, minerals etc.): 16%Exports to USA and EU have been declining; both are now below 20% each of total. Share of Asia (50%) and Africa (10%) has increasedChange indirection implies process of diversification is underway, especially since the financial crisisImport basket: POL: 36%, Gold and Silver: 8-10%, Capital goods: 20%Share of EU in imports has also declined (15%); Asia: 35% (China: 11%, Saudi Arabia: 8%, UAE: 7%), Africa: 4%While export growth has significantly decelerated, trade deficit has also reduced, mainly on account of reduced imports at the back of falling crude prices and moderating demand for gold and silverWTO Negotiations and India:Last WTO conference was in Bali in 20132 significant decisions for India: TF, and decision on Public Stockholdings for Food Security PurposesUnder WTO norms, the AoA does not prohibit food procurement by public agencies, as long as this is done at market prices. However, if the government announces any kind of price support (such as MSPs in India), then this is seen as a part of domestic subsidies. All such subsidies have to be kept below 10% of the total value of the agri produce in a given yearIndia, as a part og the G-33 group, wants this provision removedSince Bali, the developed countries have been pushing to start implementation of the TF agreement, but India vetoed the agreement saying it cannot accept piecemeal implementation of the Doha Round issues; no progress has been made on the question of public stockholdings, and thill everything is taken together in a coordinated manner, it’s not possible for India to agree to TF agreementAs of now, it is clear that no WTO member can challenge India’s public stockholding programme, until a permanent solution is found and agreed uponChapter 05: Prices, Agriculture, and Food ManagementInflation has been moderating due to: decline in crude prices, decline in commodity prices, tight monetary policy helping containd demand-side pressures, moderation in wage growth, moderation in MSPs over the last couple of years, advisory to states to allow free movement of fruits and vegetables by delisting them from APMC ActAgriculture:Share in GDP: 18% (new series), 14% (old series)Share in employment 49% (from 64% in 1991)Agri exports as % of agri GDP: 14%Agri imports as % of agri GDP: 6%Value-added has been growing at around 4% p.a. since 2005. This is driven by high prices (inflation), and isn’t desirable thusCan’t increase area; need to improve yield and productivityThus, need better seeds, irrigation, fertilizers, labour and extension services, and need to rework incentives via the MSP policyFor agri R&D, Budget 2014 set aside money to create two ‘centres of excellence’ in Assam and JharhandExtension: around 60% of farmers get no technical assistance/ know-how from government funded farm research institutes. Need to leverage ICT and m-applications, and increased participation of NGOs; Budget 2014 gave more money to Kisan TVIrrigation: Only 35% covered area; schemes: (see in document)- AIBP, Soil Health Card, Gram Sinchai, Krishi Vikas, Krishi Sinchai, Paramparagat Krishi Vikas, Price Stabilitzation Fund etc.Seeds: Given the lack of evidence on negative consequences from Bt and other GM crops, and the significant potential productivity, food security, and sustainability benefits, the corresponding regulatory framework needs rethinkingCredit: NABARD studies show that 40% of all finances of farmers come from informal sources (26% from moneylenders)Level of mechanization is low, at only around 40%, and has been growing rather slowly GCF has increased to 21% of agri GDP in 2012 from 13% in 2004 (around 85% of this is from private sources)Review Shanta Kumar recommendations (4 heads: Procurement, PDS and NFSA, FCIs role in stocking and movement, Buffer stocking and liquidation policy)APMC: to improve marketing central government is trying out various things: Advisory to states to go beyond the provisions of the model APMC act and declare the entire state a single market; remove all restrictions to movement of all agri produce within a statePromote National Agri Market through Agri-Tech Infrastructure FundExempt marketing of fruits and vegetables from purview of APMC- a number of states have done thisChapter 06: Industrial, Corporate, and Infrastructure PerformanceRecent initiatives to boost industrial growth:Efforts to improve rank on Ease of Doing Business (reforms in areas such as starting a business, construction permits, power supply, tax payments, enforcing contracts, resolving insolvency etc.)Make in India: 25 priority sectors identified; FDI norms publishedE-Biz project: G2B portal is being set up as a one-stop shop for delivery of services to investorsSkill Development: New Ministry of Skill Development and Entrepreneurship has been set up. 31 industry/ employer-led Sector Skill Councils (SSCs) are now operational, and have been aligned with 25 ‘Make in India’ sectors Streamlining environment and forest cleanrancesLabour reforms (Shram Suvidha Portal for online registration of units, transparent labour inspections, Apprentice Act reform, Apprentice Protsahan Yojana)According to IIP, industrial growth had been slowing down from 2010-2014, and reversed trend in 2014-15. Main reasons for slowdown: high interest rates, investment slowdown, loss of business confidenceRecovery in industrial growth (minor, 2.1% growth in 2014-15) has anyway been led by mining and electricity, not by manufacturingIndia’s share in world manufacturing output: 1.8%World merchandise exports: 1.7%World merchandise imports: 2.5% (both imports and exports have increased from about 0.5% each in 1991 and about 1% each in 2004)MSMEs: India has about 3.5 crore MSMEsContribute about 40% of all secondary sector GDP, 45% exports, and 67% employmentNew schemes to promote MSMEs:(a) PM Employment Generation Programme(b) Micro and Small Enterprise Cluster Development Programme(c) Credit Guarantee Fund Scheme for MSMEs(d) Assistance to training institutions(e) Scheme of fund for regeneration of traditional industries(f) MUDRA, SETU, AIM(g) Infrasructure and skill development focus will help MSMEs too(h) Efforts are on to correct inverted duty structureFDI: In 2014-15, FDI upto 49% through government route permitted in defenceFDI upto 100% (automatic route) permitted in construction, operation, and maintenance of identified railway transport infrastructure2014 say about $30 billion of FDI inflows (of which equity: $20 billion)Major FDI sectors: services, construction, telecom, software and hardware (computer), drugs and pharmaceuticals, automobile industry etc.Infrastructure performance for some sectors:Power: Plant load factor is only at about 65%Key new schemes: Integrated Power Development Scheme (IPDS): strengthening transmission and distribution in urban areas, metering of feeders/ transformers/ consumers, rooftop solar panelsDDU-GJY: separate agri and non-agri feeders, strengthening transmission and distribution in rural areas, metering in rural areas Revise Coal Mines and MMDR Acts from your own notesRoads sector: The economic downturn seen in the last few years caused reduction in the growth of traffic, and consequently lower revenue realization for BoT road projects. Reduced revenue adversely affected debt servicing by concessionaires, who then had to seek debt restructuring from banks. Thus, road sector debt portfolio faces disproportionately high levels of default. This has killed the appetite for BoT PPP projects; developers have no equity to contribute, and lenders are unwilling to provide debt funds. Urbanisation: 3 new schemes:Swachh Bharat Scheme (open defecation, manual scavenging, solid waste management, generate awareness about sanitation)Smart cities schemeAMRUTHRIDAY (Heritage City Development and Augmentation Yojana)Chapter 07: Services SectorFour broad subsectors: (Trade, hotels, and restaurants), (Transport, Communications, and Storage), (Financial, Insurance, and Real Estate services), and (Community and Public Services)Between 2001-13, India’s services sector has grown at 9% p.a., second only to China’s 11% p.a.CAGR of services exports between 2001-13 has been 20% p.a.In 2014, yoy increase in FDI in services in India was about 25%Whenever analyzing importance of services sector to Indian economy, cover contribution to GDP, trade flows, FDI inflows, and employmentIn the new series, share of services in GDP has declined significantly, because trade carried on by manufacturing units is not classified under manufacturing, as against under services beforeIn most states, services account for over 40% of GDP (driven by ‘trade’ and ‘real estate’ subsectors)Estimates vary, but services FDI inflows account for 43-54% of all equity FDI inflows in IndiaIndia’s share in global exports of commercial services = 3.2% (more than merchandise exports share)Net services have been a major source of financing India’s trade deficit in recent years; finance about 50% of merchandise trade deficitMajor services exports: computer services (45%), tech. and trade related (8%), travel and tourism (12%), financial, insurance, and pension services (6%)However, there remain many market access barriers and domestic regulations in India’s services sector. Steady, considered removal of these can help exploit further potential of India’s services trade Services Employment: Over the last decade, total employment elasticity has been about 0.5 in services sector as a whole (0.9 for industry)Within services, (trade, hotels, and restaurants), and (transport, storgae, and communications) have highest employment elasticits (0.6)Subsector performance:Tourism: Accounts for 7% of India’s GDP and 13% employmentHowever, India’s share of global tourist arrivals is a mere 1.5%; countries like Vietnam and Cambodia beat thatShipping:Nearly 70% of India’s total trade (by volume) is via shippingHowever, this sector has been plagued with economic hardships since 2008Chapter 08: Climate Change and Sustainable DevelopmentAny treaty resulting from CoP21 in Paris this year must be ambitious, comprehensive, equitable, and balancedDeveloping countries expect two things: (a) Access to financial resources, and (b) Low carbon technology optionsUSA pledge: will reduce emission by 26-28% below 2005 levels by 2030China pledge: will peak CO2 emissions around 2030, and make ‘best efforts’ to peak early; will increase the share of non-fossil fuels in primary energy consumption to about 20% by 2030India’s recent actions: National solar mission is being scaled up 5-fold to 100GW (by 2022)Clean energy cess on coal has been doubled to Rs. 100/tonneAs a voluntary goal under NAPCC, India is well on track to achieve a 20-25% reduction in emissions intensity of GDP by 2020India’s installed renewable capacity in 35GW (of which wind: 66%, rest is small hydel and solar)India is thinking of establishing a National University for Renewable EnergyEstablishment of National Air Quality Index and National Air Quality SchemeSmart Cities schemeSwachh Bharat InitiativeIndia has set up a ‘National Adaptation Fund’ to combat threat from climate-change in sector such as agriculture, water, and forestryIndia wants equity, and CBDRIndia has also made some judicious use of GEF and GCF fundingHowever, India is at the cusp of an urban flare up- population of Indian cities is likely to almost double by 2030, and many Indian cities will have populations bigger than those of small countriesWith more than half of India of 2030 yet to be built, there is a great opportunity to avoid excessive dependence on fossil fuelsDifference between GEF and GCF: GEF founded in 1991, GCF in 2010GEF is more broad based, deals with ‘global environment’; GCF is specifically for climate changeGEF is based on voluntary contributions rather tha being based on ‘assessed contributions’ like GCFGEF has only mobilized a pittance so far; GCF is meant to lead the changeData shows that 1983-2012 has been the warmest thirty year period since 1400sIPCC says extreme heat events are likely to be longer and more intense in addition to change in precipitation patternsEcological overshoot problem: happens when ecological footprint is larger than he bio-capacity of the populationIPCC claims that to stay below 2 degree Celsius change in temperature, the world can only emit 1000Gt till 2100. If we go at current pace, we’ll exhaust this in 30 yearsKey issue: how to allocate the remaining budget between countries in a manner that is just, equitable, fair, and achievable?India’s cumulative share (historical) in global emission has been only 3% (USA: 21%; EU: 19%)Also need social justice and equityIn sum, we can say that global climate action rests heavily on the means of implementation, especially finance and technologyChapter 09: Social Infrastructure, Employment, and Human Development India demographic structure:0-14 years: 28%15-59 years: 63% (economically active population)60+: 9%In 2020, average age of an Indian will be 29 years (45+ in most western nations)World will experience a shortfall of about 53 million workersIndia will have a surplus of about 47 million (but largely unskilled)Need well-designed education and training regimeEducation:Literacy rate: 73% (Males: 81%; Females: 65%)Although under SSA, India has achieved universal primary enrolment, standard of education remains abysmalPISA (Programme of International Student Assessment) shows even the best Indian states such as Tamil Nadu do better only as compared to one country- Kyrgystan- on basic reading and comprehension, mathematics skills. India’s doesn’t participate in PISa now4 schemes in education sector:Mid-Day MealRashtriya Madhyamik Shiksha AbhiyanSaakshar Bharat (Adult literacy)GER in higher education has doubled from 2005, but still remains quite low at 21%Employment:Current size of skilled workforce: 2% (South Korea: 96%, Japan: 80%)By 2022, need additional 1.2 crore people in non-farm sectorPoor skills are due to:Dearth of formal education frameworkWide variety in quality, high school dropout rates, inadequate skill training capacity, lack of ‘industry-ready’ skills even in professional coursesSchemes (RUNT-MN-DD)Rashtriya Ucchatar Shiksha AbhiyanUSTTAD(Upgrading Skills and Training in Traditional Arts/ Crafts for Development)Nai Manzil (for school dropouts)Technical Education Quality Improvement Programme (TEQIP)Manas (for minority youth)Nai Roshni (for women)Deen Dayal Upadhyay Grameen Kaushal Yojana (DDU-GKY)Dedicated department of skill development and entrepreneurshipNew All India Service for Skill DevelopmentEmployment Growth:CAGR between 2004-11: 0.5% (was 3% between 1999-2004)Self employment still accounts for about 52% of total; casual wage employment is another 30%49% of all employment is in agriculture, 24% in industry, and 27% in services)MSME promotion is critical from the perspective of job creationUnemployment in India has remained the same when measured by USS (2%) between 2004-2011; however, CDS has declined from 8% to 6%, most likely because of increase in enrolment ratesLFPR has declined drastically for females, from around 29% to 22%, most likely, again, due to higher enrolment ratesLabour welfare schemes:Apprentice Protsahan YojanaShram Suvidha Portal (gives ‘Unique Labour Identification Number (U-LIN)’ to registered units, allows for filing of self-certified single online returns by industry, transparent labour inspection scheme by computerized system etc.)RSBY: there are proposals to extend this to all unorganized workers ina phased mannerHealth:India is set to achieve MDGs related to maternal and child survival (reducing MMR, CMR)Mission IndradhanushStrengthening of NRHMIndia’s HDI rank: 135/ 180sGDI: similarThus, bottom 20-25% in both indicies98% of all sterilizations are tubectomies on women (gender discrimination)Child sex ratio: 918 (was 980 in 1961)Prevention of Women from Domestic Violence Act (PWDVA) is weakly implementedBBBP scheme (Haryana’s sex ratio: 835/1000)India aims at being among the top 50 countries in Doing Business index; it must also aim to be among the top 50 in HDI and GDI ................
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