Economic Survey Chapter 1: Overview of the State of the Economy


The first chapter of the Economic Survey 2017-18 is titled, “State of the Economy: An Analytical Overview and Outlook for Policy”. The chapter covers the following areas:

  • Short term overview of the Economy
  • Medium-term overview of the Economy
  • Recent developments
  • Outlook for 2017-18
  • Outlook for 2018-19

(Read: Economic Survey: 10 new facts about the Indian Economy)

Short term overview of the Economy

Various reforms were undertaken over the past year.

Medium-term overview of the Economy

  • First, India has created one of the most effective institutional mechanisms for cooperative federalism, the GST Council. The GST council has the Finance Minister of India as well as the FMs of all states as members.
  • Co-operative federalism is important to undertake important structural reforms that involve the participation of states. Some of the examples mentioned are the creation of a national agricultural market, solving inter-state water disputes etc.
  • Second. the passage of Insolvency and Bankruptcy resolution code enables the corporate sector to ‘exit’ with ease. The recently proposed Financial Resolution and Deposit Insurance Bill (FRDI) would do the same for financial firms.
  • Third, progress has been made in providing bank accounts, cooking gas, housing, power, and toilets (amongst others) to the poor. The government policy has been focussed towards providing essential goods and services at low prices, especially to the poor, rather than doling out subsidies.
  • Fourth, India can never take strong macroeconomic fundamentals for granted. We will always have to be vigilant on that front. India’s fiscal deficit and current account deficit, both are dependent on international oil prices.
  • Fifth, there are challenges on the way to reduce corruption. There should be greater reliance on using incentives and carrots than on sticks; greater focus on addressing the flow problem (the policy environment that incentivizes rent-seeking or corruption) than the stock problem.
  • India is still uncertain about the role of states and markets. Limitations on state affect the delivery of essential services such as health and education. At the same time, the introduction of technology and the JAM (Jan DhanAadhaar— Mobile) architecture holds the potential for significant improvements in such capacity.
  • Over the medium term, three areas of policy focus stand out: Employment: finding good jobs for the young and burgeoning workforce, especially for women. Education: creating an educated and healthy labour force. Agriculture: raising farm productivity while strengthening agricultural resilience.

Recent developments

  • Until early 2016, India’s growth had been accelerating when growth in other countries was decelerating.
  • But then the opposite happened.
  • The world economy embarked on a recovery path, but India’s GDP growth—and other indicators such as industrial production (IIP), credit, and investment—decelerated.

(Read: Why India’s GDP slowed down?)

Outlook for 2017-18 & 2018-19

  • High-frequency indicators suggest recovery is taking underway and the growth rate should be around 6.5 % in 2017-18
  • The Economic Survey has forecasted that India’s growth will pick up between 7 – 7.5 % in 2018-19, reinstating India India as the world’s fastest-growing major economy.
  • India’s exports will have to improve. Exports growth will accelerate if the world economy remains buoyant as it is today.
  • Insolvency & Bankruptcy code will have to be implemented properly for private investment to improve.

Have any Question or Comment?

3 comments on “Economic Survey Chapter 1: Overview of the State of the Economy

Uma

Fifth, there are challenges on the way to reduce corruption. There should be greater reliance on using incentives and carrots than on sticks; greater focus on addressing the flow problem (the policy environment that incentivizes rent-seeking or corruption) than the stock problem.

What Exactly This statement is telling ?

What is the meaning of the phrase – Carrots than on sticks ?

Reply
Mridusmita

1) Carrots than on sticks means that rather than punishing people who indulge in corruption (sticks), the Government should create an environment which incentivises honest behaviour (carrots) and reduces the opportunities for corruption.
2)Flow rather than the stock problem: Demonetisation addressed the stock problem of corruption. It has unearthed black money, but if demonetisation is not accompanied by other structural reforms, people can generate black money again. So Government should address the flow problem by introducing reforms like cashless transactions etc.
Hope it helps

Reply
Uma

Thank you very much Madam ! It is Clear now.

Reply

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