UPSC – IAS Civil Services Examinations

Union Public Service Commission

Economic Survey

IndexIndexIndexIndex

Volume Volume Volume Volume – 1111

Chapter 1 Chapter 1 Chapter 1 Chapter 1 – Challenge Challenge Challenge Challenge for India for India for India for India 1111

Chapter 2Chapter 2Chapter 2Chapter 2 – Growth Growth Growth Growth & Debt Sustainability & Debt Sustainability & Debt Sustainability & Debt Sustainability 11111111

CCCChapter 3 hapter 3 hapter 3 hapter 3 – SCR SCR SCR SCR Trends of India Trends of India Trends of India Trends of India 16161616

Chapter 4 Chapter 4 Chapter 4 Chapter 4 – Process Process Process Process Reforms Reforms Reforms Reforms 19191919

Chapter 5 Chapter 5 Chapter 5 Chapter 5 – Health Health Health Health Care Takes Centre Stage Care Takes Centre Stage Care Takes Centre Stage Care Takes Centre Stage 22222222

Chapter 6 Chapter 6 Chapter 6 Chapter 6 – Inequality Inequality Inequality Inequality &&&& Growth Conflict or Convergence Growth Conflict or Convergence Growth Conflict or Convergence Growth Conflict or Convergence 27272727

Chapter 7 Chapter 7 Chapter 7 Chapter 7 – Regulatory Regulatory Regulatory Regulatory ForbeaForbeaForbeaForbearance rance rance rance 33333333

Chapter 8 Chapter 8 Chapter 8 Chapter 8 – Economic Economic Economic Economic Growth Growth Growth Growth 38383838

CCCChapter 9 hapter 9 hapter 9 hapter 9 – Jay Jay Jay Jay HoHoHoHo----Ayushman BharatAyushman BharatAyushman BharatAyushman Bharat’’’’s & Jan Aros & Jan Aros & Jan Aros & Jan Arogya gya gya gya

YojYojYojYojana (ana (ana (ana (JAYJAYJAYJAY)))) 44441111

Chapter 10 Chapter 10 Chapter 10 Chapter 10 – Bare Bare Bare Bare Necessities Necessities Necessities Necessities 46464646

VolumeVolumeVolumeVolume – 2222

Chapter 1 Chapter 1 Chapter 1 Chapter 1 – State State State State oooof f f f The Economy The Economy The Economy The Economy 56565656

Chapter 2 Chapter 2 Chapter 2 Chapter 2 – Fiscal Fiscal Fiscal Fiscal DevelopDevelopDevelopDevelopments ments ments ments 60606060

Chapter 3 Chapter 3 Chapter 3 Chapter 3 – External External External External Trade Trade Trade Trade 65656565

Chapter 4 Chapter 4 Chapter 4 Chapter 4 – Imp Imp Imp Imp Facts During CFacts During CFacts During CFacts During COVID OVID OVID OVID 73737373

Chapter 5 Chapter 5 Chapter 5 Chapter 5 – ShaShaShaShare re re re of Industry & its Compof Industry & its Compof Industry & its Compof Industry & its Components in GVA onents in GVA onents in GVA onents in GVA 77777777

Chapter 6 Chapter 6 Chapter 6 Chapter 6 – Services Services Services Services 82828282

Chapter 7 Chapter 7 Chapter 7 Chapter 7 – SSSSustainable ustainable ustainable ustainable Development Development Development Development 96969696

ImpImpImpImportant Questionortant Questionortant Questionortant Questions s s s 111101010101

* TradeTradeTradeTrade----Off between livesOff between livesOff between livesOff between lives & livelihood & livelihood & livelihood & livelihood

1.1.1.1. Ramping up its health and testing infrastructure.Ramping up its health and testing infrastructure.Ramping up its health and testing infrastructure.Ramping up its health and testing infrastructure. 2.2.2.2. Reforms to boost longReforms to boost longReforms to boost longReforms to boost long----term growth term growth term growth term growth potential of the economy.potential of the economy.potential of the economy.potential of the economy.

* ShorShorShorShort Term t Term t Term t Term ---- TradeTradeTradeTrade----Off betweenOff betweenOff betweenOff between lives & livelihoods.lives & livelihoods.lives & livelihoods.lives & livelihoods.

* Long Term Long Term Long Term Long Term ---- a wina wina wina win----win that saves both lives and livelihoods.win that saves both lives and livelihoods.win that saves both lives and livelihoods.win that saves both lives and livelihoods.

1.1.1.1. Continued reformsContinued reformsContinued reformsContinued reforms 2.2.2.2. InnovationInnovationInnovationInnovation 3.3.3.3. Timely regulatory supportTimely regulatory supportTimely regulatory supportTimely regulatory support 4.4.4.4. Withdrawal of Withdrawal of Withdrawal of Withdrawal of forbearanceforbearanceforbearanceforbearance 5.5.5.5. focus on common man focus on common man focus on common man focus on common man ---- Bare necessities index (food, cloth, shelter)Bare necessities index (food, cloth, shelter)Bare necessities index (food, cloth, shelter)Bare necessities index (food, cloth, shelter)

* uncertainuncertainuncertainuncertain

* lethal lethal lethal lethal

* crisis vs covid (unique) crisis vs covid (unique) crisis vs covid (unique) crisis vs covid (unique) ---- In a Century CrisisIn a Century CrisisIn a Century CrisisIn a Century Crisis

° a 150 a 150 a 150 a 150 ---- year eventyear eventyear eventyear event

° India more VulnerableIndia more VulnerableIndia more VulnerableIndia more Vulnerable

Twin shock Twin shock Twin shock Twin shock {health shock & economic shockhealth shock & economic shockhealth shock & economic shockhealth shock & economic shock}

* EfficacyEfficacyEfficacyEfficacy

* Stringent indexStringent indexStringent indexStringent index

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* SaSaSaSargeant model rgeant model rgeant model rgeant model

* Spanish fluSpanish fluSpanish fluSpanish flu

* Barbell strategyBarbell strategyBarbell strategyBarbell strategy

* Economic reformsEconomic reformsEconomic reformsEconomic reforms

* Direct benefit transferDirect benefit transferDirect benefit transferDirect benefit transfer

* Atmanirbhar Bharat (ANB) VAtmanirbhar Bharat (ANB) VAtmanirbhar Bharat (ANB) VAtmanirbhar Bharat (ANB) V----Shaped Recovery.Shaped Recovery.Shaped Recovery.Shaped Recovery.

* CovidCovidCovidCovid----19 virus 19 virus 19 virus 19 virus ---- SARS SARS SARS SARS ---- COV. 2 COV. 2 COV. 2 COV. 2 ---- Identified in ChinaIdentified in ChinaIdentified in ChinaIdentified in China

* WHO WHO WHO WHO ---- declared declared declared declared ---- PANDEMIC PANDEMIC PANDEMIC PANDEMIC ---- 11th march, 202011th march, 202011th march, 202011th march, 2020

* Infected Infected Infected Infected ---- 9.6 crore People9.6 crore People9.6 crore People9.6 crore People

* Daily cases Daily cases Daily cases Daily cases ---- 6 lakh cases/day6 lakh cases/day6 lakh cases/day6 lakh cases/day

* 20.5 lakh Death20.5 lakh Death20.5 lakh Death20.5 lakh Death

° Global case fatality Rate (CFR)Global case fatality Rate (CFR)Global case fatality Rate (CFR)Global case fatality Rate (CFR)

° Initially = 5Initially = 5Initially = 5Initially = 5----.6.6.6.6%

° Jan 2021 = 2Jan 2021 = 2Jan 2021 = 2Jan 2021 = 2....02020202%

* Triggered a Triggered a Triggered a Triggered a global recessionglobal recessionglobal recessionglobal recession

* Estimates by World Bank (4Estimates by World Bank (4Estimates by World Bank (4Estimates by World Bank (4----3333% ) Contraction) Contraction) Contraction) Contraction

* & by IMF (3& by IMF (3& by IMF (3& by IMF (3----5555% ) Contraction) Contraction) Contraction) Contraction

Because Of covid Because Of covid Because Of covid Because Of covid ---- Health crisisHealth crisisHealth crisisHealth crisis----induced global recession.induced global recession.induced global recession.induced global recession.

* Earlier crisis were financial great depression of 1930Earlier crisis were financial great depression of 1930Earlier crisis were financial great depression of 1930Earlier crisis were financial great depression of 1930----32, 1991, 200932, 1991, 200932, 1991, 200932, 1991, 2009

"GREAT "GREAT "GREAT "GREAT LOCKDOWN" Highly synchronized.LOCKDOWN" Highly synchronized.LOCKDOWN" Highly synchronized.LOCKDOWN" Highly synchronized.

* 90909090% Economies (Countries) got impacted Economies (Countries) got impacted Economies (Countries) got impacted Economies (Countries) got impacted ↓↓↓↓GDPGDPGDPGDP

* Great Depression (1930Great Depression (1930Great Depression (1930Great Depression (1930----32) 32) 32) 32) ---- 85858585% Countries got impacted.Countries got impacted.Countries got impacted.Countries got impacted.

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---- Solution to save life = Lockdown Solution to save life = Lockdown Solution to save life = Lockdown Solution to save life = Lockdown ---- impacted livelihood more.impacted livelihood more.impacted livelihood more.impacted livelihood more.

---- WinWinWinWin----win Situation win Situation win Situation win Situation ---- will save both lives/livelihoods. will save both lives/livelihoods. will save both lives/livelihoods. will save both lives/livelihoods.

Earlier Crisis like 2009 & 1929Earlier Crisis like 2009 & 1929Earlier Crisis like 2009 & 1929Earlier Crisis like 2009 & 1929 Covid crisisCovid crisisCovid crisisCovid crisis

Only Demand or supply got impactedOnly Demand or supply got impactedOnly Demand or supply got impactedOnly Demand or supply got impacted Both Demand & Supply got impacted Both Demand & Supply got impacted Both Demand & Supply got impacted Both Demand & Supply got impacted

---- Twin ShTwin ShTwin ShTwin Shock ock ock ock

Demand Demand Demand Demand ---- No Jobs, No Income.No Jobs, No Income.No Jobs, No Income.No Jobs, No Income. Supply Supply Supply Supply ---- Factory off (No Supply), Supply chain broken.Factory off (No Supply), Supply chain broken.Factory off (No Supply), Supply chain broken.Factory off (No Supply), Supply chain broken.

1.1.1.1. Network effect Network effect Network effect Network effect ---- Huge Population Huge Population Huge Population Huge Population ---- High pace of speed.High pace of speed.High pace of speed.High pace of speed.

They have higher probability of spreading of a disease and They have higher probability of spreading of a disease and They have higher probability of spreading of a disease and They have higher probability of spreading of a disease and probability of its probability of its probability of its probability of its

turning into an epidemic is high.turning into an epidemic is high.turning into an epidemic is high.turning into an epidemic is high.

2.2.2.2. RoRoRoRo ---- Reproduction Number Reproduction Number Reproduction Number Reproduction Number ---- expected no. of new cases of the disease caused expected no. of new cases of the disease caused expected no. of new cases of the disease caused expected no. of new cases of the disease caused

by a single individual by a single individual by a single individual by a single individual ---- RO measures transmission potentialRO measures transmission potentialRO measures transmission potentialRO measures transmission potential

RoRoRoRo < 1 = Disease will die out1 = Disease will die out1 = Disease will die out1 = Disease will die out

RoRoRoRo = 1 = 1 = 1 = 1 →→→→ Covid Covid Covid Covid ≠≠≠≠ PandemicPandemicPandemicPandemic

RoRoRoRo > 1 1 1 1 →→→→ Pandemic Pandemic Pandemic Pandemic [supersupersupersuper----spreadingspreadingspreadingspreading]

3

::::

1.1.1.1. Absolute population = Cases Absolute population = Cases Absolute population = Cases Absolute population = Cases ↑↑↑↑, Death , Death , Death , Death ↑↑↑↑↑↑↑↑

2.2.2.2. Population Density = Cases Population Density = Cases Population Density = Cases Population Density = Cases ↑↑↑↑, Death (unlimited), Death (unlimited), Death (unlimited), Death (unlimited)

Global Average = 58 persons per sq. km.Global Average = 58 persons per sq. km.Global Average = 58 persons per sq. km.Global Average = 58 persons per sq. km.

India = 382 persons per sq. km. India = 382 persons per sq. km. India = 382 persons per sq. km. India = 382 persons per sq. km.

AIM AIM AIM AIM →→→→ Flatten the epidemic curve.Flatten the epidemic curve.Flatten the epidemic curve.Flatten the epidemic curve.

1.1.1.1. Containment strategyContainment strategyContainment strategyContainment strategy

2.2.2.2. Non Non Non Non ---- Pharma interventions Pharma interventions Pharma interventions Pharma interventions

1.1.1.1. Containment strategy Containment strategy Containment strategy Containment strategy ---- surveillance, Early detection, Isolation and case surveillance, Early detection, Isolation and case surveillance, Early detection, Isolation and case surveillance, Early detection, Isolation and case

management, contact tracing, social distancing.management, contact tracing, social distancing.management, contact tracing, social distancing.management, contact tracing, social distancing.

2.2.2.2. Non Non Non Non ---- Pharma interventions Pharma interventions Pharma interventions Pharma interventions ---- Lockdowns, closure of schools and nonLockdowns, closure of schools and nonLockdowns, closure of schools and nonLockdowns, closure of schools and non----essential essential essential essential

business, travel restrictions. business, travel restrictions. business, travel restrictions. business, travel restrictions.

3.3.3.3. sources of motivation sources of motivation sources of motivation sources of motivation

a) Nobel Nobel Nobel Nobel ---- PrizePrizePrizePrize winning research in Hansen & Sargewinning research in Hansen & Sargewinning research in Hansen & Sargewinning research in Hansen & Sargent (2001)nt (2001)nt (2001)nt (2001)

b) Spanish flu pandemic Spanish flu pandemic Spanish flu pandemic Spanish flu pandemic

c) Barbell Strategy in Finance.Barbell Strategy in Finance.Barbell Strategy in Finance.Barbell Strategy in Finance.

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a)a)a)a) Hansen & Hansen & Hansen & Hansen & SargeSargeSargeSargent (2001)nt (2001)nt (2001)nt (2001)

1.1.1.1. New DiseaseNew DiseaseNew DiseaseNew Disease

2.2.2.2. Case fatality Rate (CFR) unknown.Case fatality Rate (CFR) unknown.Case fatality Rate (CFR) unknown.Case fatality Rate (CFR) unknown.

3.3.3.3. Reproduction Rate unknown (RO).Reproduction Rate unknown (RO).Reproduction Rate unknown (RO).Reproduction Rate unknown (RO).

4.4.4.4. Initially: many asymptotic cases.Initially: many asymptotic cases.Initially: many asymptotic cases.Initially: many asymptotic cases.

5.5.5.5. Peak time and level not known.Peak time and level not known.Peak time and level not known.Peak time and level not known.

6.6.6.6. Impact of health benefits of various strategies unknown.Impact of health benefits of various strategies unknown.Impact of health benefits of various strategies unknown.Impact of health benefits of various strategies unknown.

7.7.7.7. Impact of above steps on economy uncertain. Impact of above steps on economy uncertain. Impact of above steps on economy uncertain. Impact of above steps on economy uncertain.

8.8.8.8. Whether to save lives or livelihoods.Whether to save lives or livelihoods.Whether to save lives or livelihoods.Whether to save lives or livelihoods.

PolicyPolicyPolicyPolicy---- When uncertainty high When uncertainty high When uncertainty high When uncertainty high ---- Policy should be focused on minimizing Policy should be focused on minimizing Policy should be focused on minimizing Policy should be focused on minimizing

losses. losses. losses. losses.

b)b)b)b) Spanish flu pandemic of 1918Spanish flu pandemic of 1918Spanish flu pandemic of 1918Spanish flu pandemic of 1918----19191919

* Highly contagious, what for youHighly contagious, what for youHighly contagious, what for youHighly contagious, what for young, ng, ng, ng, "Prime"Prime"Prime"Prime----age" adults, especiallyage" adults, especiallyage" adults, especiallyage" adults, especially men.men.men.men.

* Deadliest in world history Deadliest in world history Deadliest in world history Deadliest in world history ---- 1.1.1.1. Infected around 500 million persons or about one third of the world's Infected around 500 million persons or about one third of the world's Infected around 500 million persons or about one third of the world's Infected around 500 million persons or about one third of the world's

population.population.population.population.

2.2.2.2. Killed Killed Killed Killed ---- 50 to 100 million people.50 to 100 million people.50 to 100 million people.50 to 100 million people.

* Lockdowns implemented in 1918, quLockdowns implemented in 1918, quLockdowns implemented in 1918, quLockdowns implemented in 1918, quarantine, hand washing, sanitizationarantine, hand washing, sanitizationarantine, hand washing, sanitizationarantine, hand washing, sanitization pracpracpracpractices, tices, tices, tices, social distancing. social distancing. social distancing. social distancing.

c)c)c)c) Barbell StrategyBarbell StrategyBarbell StrategyBarbell Strategy

1.1.1.1. Identify the worst outcome/scenario.Identify the worst outcome/scenario.Identify the worst outcome/scenario.Identify the worst outcome/scenario.

2.2.2.2. Hedge against above outcome.Hedge against above outcome.Hedge against above outcome.Hedge against above outcome.

3.3.3.3. Take feedback.Take feedback.Take feedback.Take feedback.

4.4.4.4. Update response.Update response.Update response.Update response.

5.5.5.5. Common best strategy Common best strategy Common best strategy Common best strategy ---- "LOCKDOWN""LOCKDOWN""LOCKDOWN""LOCKDOWN"

Question Question Question Question ---- Discuss the efficacy of lockdown during Discuss the efficacy of lockdown during Discuss the efficacy of lockdown during Discuss the efficacy of lockdown during covid covid covid covid ---- PANDEMICPANDEMICPANDEMICPANDEMIC

* Social distancing Social distancing Social distancing Social distancing →→→→ ↓↓↓↓ TransmissionTransmissionTransmissionTransmission

* '5 T' strategy '5 T' strategy '5 T' strategy '5 T' strategy →→→→ Test, Track, Trace, Treat, Technology.Test, Track, Trace, Treat, Technology.Test, Track, Trace, Treat, Technology.Test, Track, Trace, Treat, Technology.

Cities with early lockdown sawCities with early lockdown sawCities with early lockdown sawCities with early lockdown saw ----

a)a)a)a) Delayed time to peak mortality.Delayed time to peak mortality.Delayed time to peak mortality.Delayed time to peak mortality.

b)b)b)b) ↓↓↓↓ Magnitude of the peak mortality.Magnitude of the peak mortality.Magnitude of the peak mortality.Magnitude of the peak mortality.

c)c)c)c) ↓↓↓↓ Total mortality burden. Total mortality burden. Total mortality burden. Total mortality burden.

5

---- Cities with intense lockdown saw Cities with intense lockdown saw Cities with intense lockdown saw Cities with intense lockdown saw ↓↓↓↓ their total mortality. their total mortality. their total mortality. their total mortality.

* Cities with early multiple interventions. Cities with early multiple interventions. Cities with early multiple interventions. Cities with early multiple interventions.

* For covidFor covidFor covidFor covid----19 evidence showed that a combo of intervention works better than 19 evidence showed that a combo of intervention works better than 19 evidence showed that a combo of intervention works better than 19 evidence showed that a combo of intervention works better than

a single intervention a single intervention a single intervention a single intervention

1.1.1.1. Face masksFace masksFace masksFace masks

2.2.2.2. Physical distancingPhysical distancingPhysical distancingPhysical distancing

3.3.3.3. Hand WashingHand WashingHand WashingHand Washing

* Cities with early + Aggressive interventions experience a relative (Cities with early + Aggressive interventions experience a relative (Cities with early + Aggressive interventions experience a relative (Cities with early + Aggressive interventions experience a relative (↑↑↑↑) in real ) in real ) in real ) in real

economic activity and to control teconomic activity and to control teconomic activity and to control teconomic activity and to control the pandemic.he pandemic.he pandemic.he pandemic.

Oxford covidOxford covidOxford covidOxford covid----19 govt. response tracker 19 govt. response tracker 19 govt. response tracker 19 govt. response tracker [OXCGRTOXCGRTOXCGRTOXCGRT], provides a systematic way to , provides a systematic way to , provides a systematic way to , provides a systematic way to

track govt. responses to covidtrack govt. responses to covidtrack govt. responses to covidtrack govt. responses to covid----19 across countries.19 across countries.19 across countries.19 across countries.

India India India India ---- Most stringent lockdown (=100 as per index) of 40 days. Most stringent lockdown (=100 as per index) of 40 days. Most stringent lockdown (=100 as per index) of 40 days. Most stringent lockdown (=100 as per index) of 40 days.

Us Us Us Us ---- Stringency was around 72 only during that period when it already had 1 lakh Stringency was around 72 only during that period when it already had 1 lakh Stringency was around 72 only during that period when it already had 1 lakh Stringency was around 72 only during that period when it already had 1 lakh

cases.cases.cases.cases.

* India has a declining trend in daily new cases.India has a declining trend in daily new cases.India has a declining trend in daily new cases.India has a declining trend in daily new cases.

* India has lowest (CFR) case fataIndia has lowest (CFR) case fataIndia has lowest (CFR) case fataIndia has lowest (CFR) case fatality Rate lity Rate lity Rate lity Rate ---- having 2nd largest no. of total having 2nd largest no. of total having 2nd largest no. of total having 2nd largest no. of total

cases.cases.cases.cases.

* US in still seeing around 2 lakh daily new cases. US in still seeing around 2 lakh daily new cases. US in still seeing around 2 lakh daily new cases. US in still seeing around 2 lakh daily new cases.

Comparing India with countries having comparable proportion of old age people and Comparing India with countries having comparable proportion of old age people and Comparing India with countries having comparable proportion of old age people and Comparing India with countries having comparable proportion of old age people and

CFR's (Mexico, Indonesia, Spain, CFR's (Mexico, Indonesia, Spain, CFR's (Mexico, Indonesia, Spain, CFR's (Mexico, Indonesia, Spain, South Africa etc.)South Africa etc.)South Africa etc.)South Africa etc.)

We Find:We Find:We Find:We Find:

* India has saved a large no. of lives.India has saved a large no. of lives.India has saved a large no. of lives.India has saved a large no. of lives.

* Higher initial Stringency in countries Higher initial Stringency in countries Higher initial Stringency in countries Higher initial Stringency in countries →→→→ less deaths.less deaths.less deaths.less deaths.

6

* State wise S.I. measures the CovidState wise S.I. measures the CovidState wise S.I. measures the CovidState wise S.I. measures the Covid----19 induced restrictions imposed govt.19 induced restrictions imposed govt.19 induced restrictions imposed govt.19 induced restrictions imposed govt.

* Stringency of lockdown varied across state overtime.Stringency of lockdown varied across state overtime.Stringency of lockdown varied across state overtime.Stringency of lockdown varied across state overtime.

* Maharashtra Maharashtra Maharashtra Maharashtra ---- has a lower population density than both Bihar and Uttar Pradesh has a lower population density than both Bihar and Uttar Pradesh has a lower population density than both Bihar and Uttar Pradesh has a lower population density than both Bihar and Uttar Pradesh

yet Maharashtra has per formed the worst in no. of cases & deaths. yet Maharashtra has per formed the worst in no. of cases & deaths. yet Maharashtra has per formed the worst in no. of cases & deaths. yet Maharashtra has per formed the worst in no. of cases & deaths.

* U.P. and Bihar have much lower then what is naturally exU.P. and Bihar have much lower then what is naturally exU.P. and Bihar have much lower then what is naturally exU.P. and Bihar have much lower then what is naturally expected.pected.pected.pected.

* In terms of death Kerala, Telangana and Andhra Pradesh have managed it In terms of death Kerala, Telangana and Andhra Pradesh have managed it In terms of death Kerala, Telangana and Andhra Pradesh have managed it In terms of death Kerala, Telangana and Andhra Pradesh have managed it effectively.effectively.effectively.effectively.

* 5 strategy5 strategy5 strategy5 strategy

* Marking of districtMarking of districtMarking of districtMarking of district and zone (Red, yellow, green zones)and zone (Red, yellow, green zones)and zone (Red, yellow, green zones)and zone (Red, yellow, green zones)

* "Hotspot “&”containment zone""Hotspot “&”containment zone""Hotspot “&”containment zone""Hotspot “&”containment zone"

* "Flattering the curve""Flattering the curve""Flattering the curve""Flattering the curve"

* India & India & India & India & Argentina have not experienced a second waveArgentina have not experienced a second waveArgentina have not experienced a second waveArgentina have not experienced a second wave

* 96969696% Recovery Rate.Recovery Rate.Recovery Rate.Recovery Rate.

Service sector Service sector Service sector Service sector ---- face to face interaction type business got affected. (Examples face to face interaction type business got affected. (Examples face to face interaction type business got affected. (Examples face to face interaction type business got affected. (Examples ----

hospitality, art and entertainment)hospitality, art and entertainment)hospitality, art and entertainment)hospitality, art and entertainment)

* Faced larger contraction than manufacturingFaced larger contraction than manufacturingFaced larger contraction than manufacturingFaced larger contraction than manufacturing

* Income & employment fell down.Income & employment fell down.Income & employment fell down.Income & employment fell down.

* Livelihood got impactedLivelihood got impactedLivelihood got impactedLivelihood got impacted

1.1.1.1. Supply shock Supply shock Supply shock Supply shock

* Factories hatFactories hatFactories hatFactories hat

* Supply chain brokenSupply chain brokenSupply chain brokenSupply chain broken

2.2.2.2. demand shockdemand shockdemand shockdemand shock

* Job loss Job loss Job loss Job loss →→→→ income income income income ↓↓↓↓

* Savings ingested Savings ingested Savings ingested Savings ingested

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3.3.3.3. Economic Underheating (Economy was slowing down and growth was not Economic Underheating (Economy was slowing down and growth was not Economic Underheating (Economy was slowing down and growth was not Economic Underheating (Economy was slowing down and growth was not

achievable)achievable)achievable)achievable)

Example of Example of Example of Example of stimulus packagestimulus packagestimulus packagestimulus package

In US. In US. In US. In US. ---- When universal basic income was given to Citizens When universal basic income was given to Citizens When universal basic income was given to Citizens When universal basic income was given to Citizens ---- During CovidDuring CovidDuring CovidDuring Covid----19191919

* 15151515% ----SpentSpentSpentSpent

* 33333333% ---- SavedSavedSavedSaved

* 52525252% Paid debtPaid debtPaid debtPaid debt

Reforms during Covid (Atma Nirbhar Bharat 1.0)Reforms during Covid (Atma Nirbhar Bharat 1.0)Reforms during Covid (Atma Nirbhar Bharat 1.0)Reforms during Covid (Atma Nirbhar Bharat 1.0)

* As Govt. revenue As Govt. revenue As Govt. revenue As Govt. revenue ↓↓↓↓

* DBT (Direct Benefit Transfer) funds provided for essentiaDBT (Direct Benefit Transfer) funds provided for essentiaDBT (Direct Benefit Transfer) funds provided for essentiaDBT (Direct Benefit Transfer) funds provided for essentials.ls.ls.ls.

° PMGKY (Pradhan Mantri GaribPMGKY (Pradhan Mantri GaribPMGKY (Pradhan Mantri GaribPMGKY (Pradhan Mantri Garib KalyanKalyanKalyanKalyan Yojana )Yojana )Yojana )Yojana )

° PDsPDsPDsPDs

° DBT to widow pensioners/WomenDBT to widow pensioners/WomenDBT to widow pensioners/WomenDBT to widow pensioners/Women

° Additional funds to MGNREGSAdditional funds to MGNREGSAdditional funds to MGNREGSAdditional funds to MGNREGS

° Debt Moratorium Debt Moratorium Debt Moratorium Debt Moratorium

° Liquidity support for businesses (MSMES)Liquidity support for businesses (MSMES)Liquidity support for businesses (MSMES)Liquidity support for businesses (MSMES)

(Atma Nirbhar Bharat 2.0 & 3.0)(Atma Nirbhar Bharat 2.0 & 3.0)(Atma Nirbhar Bharat 2.0 & 3.0)(Atma Nirbhar Bharat 2.0 & 3.0)

* Lockdown easingLockdown easingLockdown easingLockdown easing

* Investment and consumption demand Investment and consumption demand Investment and consumption demand Investment and consumption demand through' 2.0 & 3.0through' 2.0 & 3.0through' 2.0 & 3.0through' 2.0 & 3.0

* Demand stimulus released when economy could absorb it as supply chain was Demand stimulus released when economy could absorb it as supply chain was Demand stimulus released when economy could absorb it as supply chain was Demand stimulus released when economy could absorb it as supply chain was

eased after lockdown.eased after lockdown.eased after lockdown.eased after lockdown.

* Capital expenditure by Govt. Capital expenditure by Govt. Capital expenditure by Govt. Capital expenditure by Govt. ↑↑↑↑

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* Initially saving went up.Initially saving went up.Initially saving went up.Initially saving went up.

* Now consumption & Investment going up.Now consumption & Investment going up.Now consumption & Investment going up.Now consumption & Investment going up.

* 3 Farm laws3 Farm laws3 Farm laws3 Farm laws

* MSME'S MSME'S MSME'S MSME'S ---- definition was changeddefinition was changeddefinition was changeddefinition was changed

* Removal of Removal of Removal of Removal of artificial separation betweenartificial separation betweenartificial separation betweenartificial separation between manufacturing and service MSME'S manufacturing and service MSME'S manufacturing and service MSME'S manufacturing and service MSME'S

BPO (Business Process Outsourcing)BPO (Business Process Outsourcing)BPO (Business Process Outsourcing)BPO (Business Process Outsourcing)

* "Work from Home" and "Work from Anywhere" were introduced. "Work from Home" and "Work from Anywhere" were introduced. "Work from Home" and "Work from Anywhere" were introduced. "Work from Home" and "Work from Anywhere" were introduced. PowerPowerPowerPower

* Privatization of Distribution in UTs.Privatization of Distribution in UTs.Privatization of Distribution in UTs.Privatization of Distribution in UTs.

PSU'sPSU'sPSU'sPSU's

* PSU's in only strategic sectors.PSU's in only strategic sectors.PSU's in only strategic sectors.PSU's in only strategic sectors.

* PrivatiPrivatiPrivatiPrivatization of PSU's in nonzation of PSU's in nonzation of PSU's in nonzation of PSU's in non----strategic sectors. strategic sectors. strategic sectors. strategic sectors.

9

Mineral SectorMineral SectorMineral SectorMineral Sector

* Removal Of captive restrictions. Removal Of captive restrictions. Removal Of captive restrictions. Removal Of captive restrictions.

* Transparent auction of mining blocks.Transparent auction of mining blocks.Transparent auction of mining blocks.Transparent auction of mining blocks.

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1.1.1.1. Expansionary fiscal Policy ( G Expansionary fiscal Policy ( G Expansionary fiscal Policy ( G Expansionary fiscal Policy ( G ↑↑↑↑, Tax , Tax , Tax , Tax ↓↓↓↓))))

2.2.2.2. Contractionary Fiscal Policy (G Contractionary Fiscal Policy (G Contractionary Fiscal Policy (G Contractionary Fiscal Policy (G ↓↓↓↓, Tax , Tax , Tax , Tax ↑↑↑↑))))

This coThis coThis coThis co----relates business cycle (G relates business cycle (G relates business cycle (G relates business cycle (G ---- Means Means Means Means ---- Government Expenditure)Government Expenditure)Government Expenditure)Government Expenditure)

[G G G G ↑↑↑↑↑↑↑↑↑↑↑↑] = = = = [DebtDebtDebtDebt↓↓↓↓] (G = Growth) (G = Growth) (G = Growth) (G = Growth)

[Debt Debt Debt Debt ↑↑↑↑] = = = = [GGGG↓↓↓↓]

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CFP CFP CFP CFP ---- Contractionary fiscal policy, EFP Contractionary fiscal policy, EFP Contractionary fiscal policy, EFP Contractionary fiscal policy, EFP ---- Expansionary fiscal policy Expansionary fiscal policy Expansionary fiscal policy Expansionary fiscal policy Inverse Relation Inverse Relation Inverse Relation Inverse Relation ---- GDP & DebtGDP & DebtGDP & DebtGDP & Debt

NoteNoteNoteNote---- During covidDuring covidDuring covidDuring covid----19 India followed CCFP19 India followed CCFP19 India followed CCFP19 India followed CCFP

A)A)A)A) GDP GDP GDP GDP ↑↑↑↑ = Debt = Debt = Debt = Debt ↓↓↓↓ = Valid for India= Valid for India= Valid for India= Valid for India

B)B)B)B) Debt Debt Debt Debt ↑↑↑↑ = GDP = GDP = GDP = GDP ↓↓↓↓ = Not valid for India= Not valid for India= Not valid for India= Not valid for India

Recession Recession Recession Recession BoomBoomBoomBoom

PCFPPCFPPCFPPCFP (Pro cyclic fistal (Pro cyclic fistal (Pro cyclic fistal (Pro cyclic fistal

policy)policy)policy)policy) CFP (GCFP (GCFP (GCFP (G↓↓↓↓)))) EFP (GEFP (GEFP (GEFP (G↑↑↑↑))))

CCFPCCFPCCFPCCFP (Counter cyclic fistal (Counter cyclic fistal (Counter cyclic fistal (Counter cyclic fistal

policy)policy)policy)policy) EFP (GEFP (GEFP (GEFP (G↑↑↑↑)))) CFP (GCFP (GCFP (GCFP (G↓↓↓↓))))

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:

* Does Growth lead to debt sustainability?Does Growth lead to debt sustainability?Does Growth lead to debt sustainability?Does Growth lead to debt sustainability?

GDP GDP GDP GDP ---- Sustainability Debt Sustainability Debt Sustainability Debt Sustainability Debt ---- valid for Indiavalid for Indiavalid for Indiavalid for India

* Does fiscal austerity foster growth?Does fiscal austerity foster growth?Does fiscal austerity foster growth?Does fiscal austerity foster growth?

Debt Debt Debt Debt ↓↓↓↓ ---- GDP GDP GDP GDP ↑↑↑↑

For COVID, India For COVID, India For COVID, India For COVID, India applied EFP under (CCFP)applied EFP under (CCFP)applied EFP under (CCFP)applied EFP under (CCFP)

GDP = C + I + G x XGDP = C + I + G x XGDP = C + I + G x XGDP = C + I + G x X----M M M M

[C = Consumption by Household, I = Investment by Private Sector, G = C = Consumption by Household, I = Investment by Private Sector, G = C = Consumption by Household, I = Investment by Private Sector, G = C = Consumption by Household, I = Investment by Private Sector, G =

Government SpendingGovernment SpendingGovernment SpendingGovernment Spending]

Due to covid Due to covid Due to covid Due to covid ---- I, c (I, c (I, c (I, c (↓↓↓↓))))

But CCFP = Allowed Government to = Spend more But CCFP = Allowed Government to = Spend more But CCFP = Allowed Government to = Spend more But CCFP = Allowed Government to = Spend more

G G G G ↑↑↑↑ = = = = ↑↑↑↑ GDP GDP GDP GDP [G = Government G = Government G = Government G = Government SpendingSpendingSpendingSpending]

∴∴∴∴ ↑↑↑↑ G G G G >> ↓↓↓↓ [C, IC, IC, IC, I] ∴∴∴∴ GDP (GDP (GDP (GDP (↑↑↑↑↑↑↑↑))))

Crowding Crowding Crowding Crowding ---- In In In In = G = G = G = G ↑↑↑↑ (when govt. is investing, the(when govt. is investing, the(when govt. is investing, the(when govt. is investing, then private sector also comes for n private sector also comes for n private sector also comes for n private sector also comes for

investment so, very much suitable for India (AS Informed sector is high in India)investment so, very much suitable for India (AS Informed sector is high in India)investment so, very much suitable for India (AS Informed sector is high in India)investment so, very much suitable for India (AS Informed sector is high in India)

CrowdingCrowdingCrowdingCrowding----outoutoutout = U.S.A. Private sector does not spend when govt. spends. = U.S.A. Private sector does not spend when govt. spends. = U.S.A. Private sector does not spend when govt. spends. = U.S.A. Private sector does not spend when govt. spends.

(Because of high farmed sector)(Because of high farmed sector)(Because of high farmed sector)(Because of high farmed sector)

1.1.1.1. Primary Deficit = Fiscal deficit Primary Deficit = Fiscal deficit Primary Deficit = Fiscal deficit Primary Deficit = Fiscal deficit ---- Interest paymentInterest paymentInterest paymentInterest payment

2.2.2.2. Growth rate (g)Growth rate (g)Growth rate (g)Growth rate (g)

3.3.3.3. Cost of govt. debt (r) = rate of Interest Cost of govt. debt (r) = rate of Interest Cost of govt. debt (r) = rate of Interest Cost of govt. debt (r) = rate of Interest

Example = G Example = G Example = G Example = G [GrowthGrowthGrowthGrowth RateRateRateRate] = 12.= 12.= 12.= 12.8 8 8 8 %, R (rate of Interest) = 8.8 , R (rate of Interest) = 8.8 , R (rate of Interest) = 8.8 , R (rate of Interest) = 8.8 %

∴∴∴∴ g g g g > r or r r or r r or r r or r < g g g g

Year (1) Year (1) Year (1) Year (1) = Rs. 100 is borrowed by India= Rs. 100 is borrowed by India= Rs. 100 is borrowed by India= Rs. 100 is borrowed by India

Year (2) Year (2) Year (2) Year (2) = Rs. 112.8 Would be there with India as g = 12.8 = Rs. 112.8 Would be there with India as g = 12.8 = Rs. 112.8 Would be there with India as g = 12.8 = Rs. 112.8 Would be there with India as g = 12.8 %, r = 8, r = 8, r = 8, r = 8----8 Rs. 8 Rs. 8 Rs. 8 Rs.

PayPayPayPay = 100 x 8.8 = 108.8 Rs.= 100 x 8.8 = 108.8 Rs.= 100 x 8.8 = 108.8 Rs.= 100 x 8.8 = 108.8 Rs.

Net Net Net Net = 112.8 = 112.8 = 112.8 = 112.8 ---- 108.8108.8108.8108.8

= Rs 4= Rs 4= Rs 4= Rs 4

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Interest Rate Growth Differential (IRGD)Interest Rate Growth Differential (IRGD)Interest Rate Growth Differential (IRGD)Interest Rate Growth Differential (IRGD) = r= r= r= r----gggg

= IRGD = IRGD = IRGD = IRGD < OOOO

= R= R= R= R----g g g g < OOOO

= r = r = r = r < gggg

1.1.1.1. PD (Primary Deficit) = Not too highPD (Primary Deficit) = Not too highPD (Primary Deficit) = Not too highPD (Primary Deficit) = Not too high

2.2.2.2. IRGD = (rIRGD = (rIRGD = (rIRGD = (r----g)g)g)g)

IRGD IRGD IRGD IRGD < O O O O ---- r r r r < g g g g ---- Debt. Become Sustainable.Debt. Become Sustainable.Debt. Become Sustainable.Debt. Become Sustainable.

IRGD IRGD IRGD IRGD > O O O O ---- r r r r < g g g g ---- Debt. Become Debt. Become Debt. Become Debt. Become unsustainable.unsustainable.unsustainable.unsustainable.

: A Negative IRGD creates on enabling environment for debt. Sustainability.: A Negative IRGD creates on enabling environment for debt. Sustainability.: A Negative IRGD creates on enabling environment for debt. Sustainability.: A Negative IRGD creates on enabling environment for debt. Sustainability.

* India, China, Russia & Singapore.India, China, Russia & Singapore.India, China, Russia & Singapore.India, China, Russia & Singapore.

* Since 2003, India's IRGD has been negative and convert for OECD economies.Since 2003, India's IRGD has been negative and convert for OECD economies.Since 2003, India's IRGD has been negative and convert for OECD economies.Since 2003, India's IRGD has been negative and convert for OECD economies.

Q.Q.Q.Q. How does the consistently negative IRGD affect the relationship b/w Debt How does the consistently negative IRGD affect the relationship b/w Debt How does the consistently negative IRGD affect the relationship b/w Debt How does the consistently negative IRGD affect the relationship b/w Debt

and growth in India?and growth in India?and growth in India?and growth in India?

GDP GDP GDP GDP ↑↑↑↑ = g = g = g = g > r = Debt Sustainable r = Debt Sustainable r = Debt Sustainable r = Debt Sustainable ---- IndiaIndiaIndiaIndia

Debt = Future Tax Debt = Future Tax Debt = Future Tax Debt = Future Tax ↑↑↑↑ ---- (Consumption & Savings) (Consumption & Savings) (Consumption & Savings) (Consumption & Savings) ↓↓↓↓ = Aggregate Demand = Aggregate Demand = Aggregate Demand = Aggregate Demand ↓↓↓↓

= = = = ∴∴∴∴ ↓↓↓↓ GDP GDP GDP GDP

Consumer absorbs Govt. decision.Consumer absorbs Govt. decision.Consumer absorbs Govt. decision.Consumer absorbs Govt. decision.

Eg. If Eg. If Eg. If Eg. If ↑↑↑↑ G (Expansionary fiscal policy) G (Expansionary fiscal policy) G (Expansionary fiscal policy) G (Expansionary fiscal policy) ---- Future Tax Future Tax Future Tax Future Tax ↑↑↑↑ = Aggregate savings would = Aggregate savings would = Aggregate savings would = Aggregate savings would

more today to pay future tax.more today to pay future tax.more today to pay future tax.more today to pay future tax.

But aggregate saving But aggregate saving But aggregate saving But aggregate saving ≠≠≠≠ Fixed in India.Fixed in India.Fixed in India.Fixed in India.

So, if G So, if G So, if G So, if G ↑↑↑↑ ---- unemployed gets job = unemployed gets job = unemployed gets job = unemployed gets job = ↑↑↑↑ AggrAggrAggrAggregate Demand = GDP egate Demand = GDP egate Demand = GDP egate Demand = GDP ↑↑↑↑ {CrowdingCrowdingCrowdingCrowding----inininin}

Q.Q.Q.Q. Is India an outlier, where higher growth rates lead to lower public debt but not Is India an outlier, where higher growth rates lead to lower public debt but not Is India an outlier, where higher growth rates lead to lower public debt but not Is India an outlier, where higher growth rates lead to lower public debt but not

vicevicevicevice----versa?versa?versa?versa?

A.A.A.A. In advanced economics like USA, UK, Canada, Italy, No,In advanced economics like USA, UK, Canada, Italy, No,In advanced economics like USA, UK, Canada, Italy, No,In advanced economics like USA, UK, Canada, Italy, No, correlation is observed correlation is observed correlation is observed correlation is observed

b/w IRb/w IRb/w IRb/w IRGD & Debt GD & Debt GD & Debt GD & Debt ---- to to to to ---- GDP GDP GDP GDP

* Indian govt. debt level = median (middle) in the group of GIndian govt. debt level = median (middle) in the group of GIndian govt. debt level = median (middle) in the group of GIndian govt. debt level = median (middle) in the group of G----20 OECD countries.20 OECD countries.20 OECD countries.20 OECD countries.

= median (middle) in the BRICS Nations. = median (middle) in the BRICS Nations. = median (middle) in the BRICS Nations. = median (middle) in the BRICS Nations.

* Indian overall debt (Govt+Pvt)Indian overall debt (Govt+Pvt)Indian overall debt (Govt+Pvt)Indian overall debt (Govt+Pvt)

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* Lowest amongst the group of GLowest amongst the group of GLowest amongst the group of GLowest amongst the group of G----20 OECD countries.20 OECD countries.20 OECD countries.20 OECD countries.

* Lowest amongst the group of BRICS nations. Lowest amongst the group of BRICS nations. Lowest amongst the group of BRICS nations. Lowest amongst the group of BRICS nations.

* Public debt and overall debt level for India has been low since 2003 and has Public debt and overall debt level for India has been low since 2003 and has Public debt and overall debt level for India has been low since 2003 and has Public debt and overall debt level for India has been low since 2003 and has been stable since 2011.been stable since 2011.been stable since 2011.been stable since 2011.

* Out of the total debt Out of the total debt Out of the total debt Out of the total debt ----

* Centre = 70 Centre = 70 Centre = 70 Centre = 70 %, State = 30 , State = 30 , State = 30 , State = 30 %

* Govt debt has very low foreign excGovt debt has very low foreign excGovt debt has very low foreign excGovt debt has very low foreign exchange risk as the external debt is only hange risk as the external debt is only hange risk as the external debt is only hange risk as the external debt is only

2.72.72.72.7% of GDP of GDP of GDP of GDP

He says = "Defeat scolds" He says = "Defeat scolds" He says = "Defeat scolds" He says = "Defeat scolds" ---- may be that govt's have a natural tendency to spend. may be that govt's have a natural tendency to spend. may be that govt's have a natural tendency to spend. may be that govt's have a natural tendency to spend.

So, does the survey give then arguments to misbehave?So, does the survey give then arguments to misbehave?So, does the survey give then arguments to misbehave?So, does the survey give then arguments to misbehave?

* Once growth picks up in a sustainable manner, it will be the time fOnce growth picks up in a sustainable manner, it will be the time fOnce growth picks up in a sustainable manner, it will be the time fOnce growth picks up in a sustainable manner, it will be the time for fiscal or fiscal or fiscal or fiscal

consolidation.consolidation.consolidation.consolidation.

* But for now, a counterBut for now, a counterBut for now, a counterBut for now, a counter----cyclic cyclic cyclic cyclic ----fiscal policy is key to revive growth.fiscal policy is key to revive growth.fiscal policy is key to revive growth.fiscal policy is key to revive growth.

* Long maturity i.e. Long term loans.Long maturity i.e. Long term loans.Long maturity i.e. Long term loans.Long maturity i.e. Long term loans.

* Floating rate debt of central govtFloating rate debt of central govtFloating rate debt of central govtFloating rate debt of central govt.... = small and India focus on fixed rate debt.= small and India focus on fixed rate debt.= small and India focus on fixed rate debt.= small and India focus on fixed rate debt.

* With (With (With (With (----) IRGD = Pro) IRGD = Pro) IRGD = Pro) IRGD = Pro----cyclical fiscal policies may lead to higher Debtcyclical fiscal policies may lead to higher Debtcyclical fiscal policies may lead to higher Debtcyclical fiscal policies may lead to higher Debt----GDP ratios. GDP ratios. GDP ratios. GDP ratios.

∴∴∴∴ We adopted counterWe adopted counterWe adopted counterWe adopted counter----cyclical fiscal policy.cyclical fiscal policy.cyclical fiscal policy.cyclical fiscal policy.

In 2000; Chilean govtIn 2000; Chilean govtIn 2000; Chilean govtIn 2000; Chilean govt.... adopted the structure surplus rule that taradopted the structure surplus rule that taradopted the structure surplus rule that taradopted the structure surplus rule that targeted the overall geted the overall geted the overall geted the overall

central govt.central govt.central govt.central govt. structural balance to be a surplus of 1structural balance to be a surplus of 1structural balance to be a surplus of 1structural balance to be a surplus of 1% of GDP every year.of GDP every year.of GDP every year.of GDP every year.

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