"The Economic Survey of India 2012-13"

                      The  Economic  Survey  is  the  work  of  the  dedicated  staff  of  the  Economic  Division  of  the Department of Economic Affairs in the Ministry of Finance  and some others outside it.  Let me 

start by thanking them for their work, all done with hard deadlines and under enormous pressure.

There are three objectives  for India  that are echoed through much of the Survey.

                   First,  India has to revive growth, and that growth has to provide more  decent  jobs for the many millions who will  join  the  labor  force,  even  while  reducing  poverty.  Second,  India  needs  to  shift  from consumption  to  investment,  that  is,  increase  our  savings  especially  government  savings  and 

household financial savings,  even as we also increase corporate and infrastructure investment. 

Third, India needs macroeconomic stabilization  –  to bring down inflation, the fiscal deficit and 

the current account deficit. There are commonalities between some of these objectives, as also 

apparent tensions.  For example,  re balancing towards investment can  potentially  raise growth as 

well as alleviate supply constraints, reduce inflation, and thus achieve macro stabilization. On the 

other  hand,  fiscal  consolidation  is  often  thought  to  be  detrimental  to  growth  in  the  short-run. 

                   However, this tension may only be

apparent. Macroeconomic rigor may, in fact, lead to growth;

cutting  wasteful  subsidies  may  reduce  market  distortions,  shrink  excess  consumption,  and 

increase confidence about government finances, all of which can help growth, even in the short run. 

The survey starts with an analysis of the causes of the recent slowdown. A number of factors are 

responsible.  First,  the  boost  to  demand  given  by  monetary  and  fiscal  stimulus  following  the 

global financial crisis was large, even though the economy was already reaching the limits to its 

potential  growth  before  the  crisis.  The  resulting  recovery  from  the  crisis  was  strong  and  final 

consumption grew at an average of over 8 percent annually between 2009-10 and 2011-12.  One 

consequence  was  strong  inflation,  and  a  powerful  monetary  response  that  also  slowed 

consumption  demand.  Second,  starting  in  2011-12,  corporate  and  infrastructure  investment 

started  slowing  both  as  a  result  of  policy  bottlenecks  as  well  as  the  tighter  monetary  policy. 

Unfortunately,  even  as  the  economy  slowed,  it  was  hit  by  two  additional  shocks:  a  slowing 

global  economy,  weighed  down  by  the  crisis  in  the  Euro  area  and  uncertainties  about  fiscal 

policy in the United States, and a weak monsoon, at least in its initial phase. 

                   As growth slowed and government revenues did not keep pace with spending, the fiscal deficit 

threatened  to  breach  the  target.  With  government  savings  falling,  and  private  savings  also 

shrinking,  the  current  account  deficit  –  which  is  the  investment  that  cannot  be  financed  by 

domestic savings and has to be financed from abroad – also widened.  

These are difficult times, but  India has navigated such times before, and with good policies  it 

will come through stronger.  The way out  lies in shifting national spending from consumption to 

investment,  removing  the  bottlenecks  to  investment,  growth,  and  job  creation,  in  part  through 

structural  reforms,  combating  inflation  both  through  monetary  and  supply  side  measures, reducing the costs  for borrowers of raising financing and increasing the opportunities for savers 

to  get  strong  real  investment  returns.  The  Survey  lists  a  number  of  measures  that  have  been 

implemented, as well as some that are needed.  

                     Every  recent  Survey  has  had  a  special  chapter,  with  this  one’s  focusing  on  jobs. 

Policymakers are  usually attentive to  short-run economic management issues. But the short run 

has to be a bridge to the long run. The central long-run question facing India is where will good 

jobs  come  from?  Productive  jobs  are  vital  for  growth.  And  a  good  job  is  the  best  form  of 

inclusion.  More  than  half  our  population  depends  on  agriculture,  but  the  experience  of  other 

countries suggests that the number of people dependent on agriculture will have to  shrink if per 

capital incomes in agriculture are to go up substantially. While industry is creating jobs, too many 

such jobs are low-productivity informal and non-regular  jobs in the unorganized sector, offering 

low  incomes,  little  protection  or  benefits.  Services  jobs  are  relatively  high  productivity,  but 

employment growth in services has been slow in recent years. India’s challenge is to create the 

conditions  for  faster  growth  of  productive  jobs  outside  of  agriculture,  especially  in  organized 

manufacturing  and  in  services,  even  while  improving  productivity  in  agriculture.  The  chapter 

calls for reforms, including the expansion of infrastructure, better and more effective regulation, 

and improvements in access to land and finance that would encourage the entry and growth of 

business  enterprises.  The  chapter  suggests  that  unless  India  undertakes  these  reforms,  it  will 

grow far below potential, and risks fiscal strains and social unrest as more and more people fall 

behind.