Economic Survey Vol. 1 Ch. 1: The Invisible Hand supported by the Hand of Trust

The Economic Survey 2019-2020 has laid stress on wealth creation through the ‘invisible hand of markets’ with the support of the ‘hand of trust’.

This chapter uses ideas from ancient works of literature that support the importance of ethical wealth creation for the growth and economic development of India. In doing so, the chapter highlighted the role played by the market in creating ethical wealth and how the government can enable an environment of trust for those markets to thrive. 

• The invisible hand of the market is based on Adam Smith's philosophy of wealth creation and economic development that provides direct or indirect benefits to the people through the activities of the free-market economy. 
• Survey has highlighted that the sectors which were liberalised 1991 grew significantly faster than those that remain closed. For instance the growth in freight and passenger traffic in an open sector (roads) when compared to a closed sector (railways).  Growth for open sectors such as cement and steel (Approx 7 % annual growth rate) versus a closed sector such as coal (hovering around 5 %) Growth in the cargo volumes in an open sector (small ports) versus a closed sector (large ports). In the last 18 years, the growth rate of large ports has been approx 5 %, while those of small ports have been approx 12 %. 

Equal opportunity for new entrants: 

• Enables efficient resource allocation and utilization facilitates job growth, promotes trade growth and consumer surplus through greater product variety, and increases the overall boundaries of economic activity.
• New firm creation has gone up dramatically since 2014 in India. The cumulative annual growth rate of 3.8% from 2006-2014 From 2014 to 2018 has been 12.2%. 70,000 new firms created in 2014, the number has grown by about 80% to about 1,24,000 new firms in 2018. (World Bank Data)

Promoting pro-business policies:

• that provide equal opportunities for new entrants. The vibrancy of economic opportunities is defined by the extent to which the economy enables fair competition, which corresponds to a “pro-business” economy. This is in contrast to the influence of incumbents in extracting rents from their incumbency and proximity to the corridors of power, which corresponds to the “pro-crony” economy.

Ease of doing business:

• India made a substantial leap forward in The World Bank’s Doing Business rankings from 142 in 2014 to 63 in 2019. Yet, the pace of reforms in enabling ease of doing business needs to be enhanced so that India can be ranked within the top 50 economies on this metric.
• India continues to trail in parameters such as Ease of Starting Business, Registering Property, Paying Taxes, and Enforcing Contracts.

Eliminate policies that unnecessarily undermine markets through government intervention: 

• The survey finds that by integrating “Assemble in India for the world” into Make in India, India can create INR 4 crores well-paid jobs by 2025 and INR 8 crores by 2030.

Banking Sector: 

• The survey highlighted that India’s banking sector is disproportionately under-developed given the size of its economy and suggested some solutions that can make PSBs more efficient. 

Privatization and wealth creation:

• Key financial indicators such as net worth, net profit, and return on assets of the privatized CPSEs, on average, have increased significantly in the post-privatization period compared to the peer firms.
• CPSE after privatisation has shown significant improvement inefficiency.

Making GDP growth predictable for Investors

Providing affordable food to the poor (Thalinomics)

Enable trade for job creation

Conclusion:

The theme around wealth creation and its role in the economy is notable as it stokes the spirit of entrepreneurship across rural and urban India. Hand of trust stresses on the governance and ethics to be the strong pillars on which industry can contribute to India’s wealth story.