Finance Minister Nirmala Sitharaman on December 31 will present the eagerly awaited Economic Survey for 2024-25, offering an official review of the economy’s performance in the current financial year. The Economic Survey is presented one day before the Union Budget is unveiled.
The Economic Survey, prepared by Chief Economic Advisor V Anantha Nageswaran, will provide insights into India’s economic landscape and outline the government’s fiscal strategy for the upcoming financial year.
Introduced in 1950-51, the Economic Survey was initially included as part of the Budget documents. In its early years, it was under 50 pages long and provided a brief overview of the economic developments from the previous year.
Here are the key issues discussed in India’s first Economic Survey (1950-51) which was presented by the Finance Minister of the time, Dr. John Matthai.
1. Inflation
Post-World War II inflation in India was a significant concern, with the effects lasting longer than they did after World War I. The economic impact of the second world war was much more severe, involving larger destruction of national assets, heightened war-related expenditure, and the redistribution of purchasing power. Unlike the post-World War I scenario, India’s inflationary pressure was aggravated by the fact that the government’s expenditure was not curtailed. There were also serious deficits in foodgrain production in India due to the war’s effects.
Price movements
Prices began to decline from October 1948 to March 1949, largely due to government intervention in controlling inflation, such as the reduction in the money supply, and control of foodgrain prices.
Government measures
While the government’s actions resulted in a decline in commodity prices, they did not sustain the downward trend. As a result, from April to October 1949, there was a surge in prices due to factors like currency devaluation, and the money supply expanded.
Food prices
Despite rising prices, foodgrain prices were notably steady in the post-war period, showing a continuous fall in the case of wheat, rice, and other food items, though prices of sugar and gur remained on the higher end.
2. Industrial and Agricultural Production
The Economic Survey emphasized production as the main strategy for controlling inflation, suggesting that increasing production would balance inflationary pressures. Industrial production showed some improvement in 1949.
Industry growth
Industries like steel, cement, coal, heavy chemicals, paper, and electricity generation grew significantly in 1949. There were large-scale imports of materials like coal, iron, and steel, necessary for sustaining the industry.
Challenges in specific industries
The textile and jute industries were severely impacted by a shortage of raw materials, particularly cotton. The disruption was a result of trade deadlock with Pakistan, and the Indian economy had to find alternative supply sources.
Despite the shortage, India imported 10 lakh bales of cotton and undertook other initiatives to boost indigenous production.
Agriculture
Foodgrain production saw an increase in 1949, reaching 43 million tons compared to 41 million tons in 1948. This improvement was attributed to better weather conditions, favorable policy changes, and the strengthening of agriculture-related programs.
It was expected that agricultural production would continue to improve in 1950, with an anticipated output of 45 million tons.
3. Labour Relations and Industrial Stability
Labour relations were stable during this period, especially when compared to the frequent disruptions seen earlier in the 1940s.
Reduction in strikes:
There were fewer industrial disputes during 1949. The number of strikes and lockouts reduced, and the number of man-days lost was also low. A cooperative approach by workers and industry leadership ensured that industrial stability was maintained.
Labour organizations:
Labour organizations were becoming stronger and more responsible in industrial matters, enhancing the overall productivity and the atmosphere for industrial growth.
The government recognized that it was necessary for both workers and employers to continue their cooperation for maintaining high industrial output.
4. Money Market Conditions
The Economic Survey stressed that the money market was facing a crisis, especially in the first half of 1949.
Short-term market issues
Short-term liquidity was severely limited, and the financial market saw fluctuations due to inflationary pressure.
Long-term market stagnation
The long-term capital market had been stagnant, with limited investments in industries due to various reasons like economic uncertainty, high costs, and low returns on investment.
Government efforts
The government recognized the issue and attempted to stabilize the financial market by creating measures to increase liquidity and confidence in long-term investments.
5. Role of Foreign Capital
India recognized the need for foreign capital to supplement its domestic resources, particularly in key sectors such as infrastructure and industry. The government considered foreign capital crucial not just for resource supplementation but also for boosting domestic investor confidence.
Partnerships over loans
It was emphasized that foreign capital should come in the form of partnerships between foreign investors and Indian businesses, rather than fixed-interest loans.
Political context
The period saw a change in India’s political climate, especially after independence. India’s approach towards foreign investment now leaned more towards strategic business partnerships, moving away from loans or financing tied to political influence or colonial dominance.
6. Balance of Payments and Trade Deficit
The Economic Survey reported that India had significant issues in the balance of payments during 1949. India had to draw approximately £81 million from its sterling balances between July 1948 and June 1949, going beyond what was previously agreed upon in the 1948 financial settlement.
Improvement after July 1949
The situation did improve after July 1949. However, the issue of the balance of payments remained critical, and India was still facing difficulties in balancing its external trade.
Exports
The government stressed the need for both increased production and export efforts to address the trade deficit and stabilize the foreign exchange reserves.
7. Deadlock with Pakistan
The Economic Survey noted the strained economic relations between India and Pakistan, especially regarding trade and financial matters.
Disputed trade terms
India proposed broad discussions to resolve the deadlock, including issues like exchange rates and price stabilization. Pakistan, however, opposed the inclusion of matters relating to price and exchange rates, thereby preventing a resolution of these issues.
Impact of the deadlock
The deadlock continued to affect trade relations, particularly concerning essential commodities like raw jute and cotton. This created further disruption in the industries relying on these materials.
8. Formation of the Planning Commission
The Economic Survey also highlighted the government’s decision to create a Planning Commission to guide India’s economic development. The formation of the commission was seen as crucial for addressing the issues of industrial stagnation, the need for better resource allocation, and enhancing economic stability.
Prime Minister’s leadership
The commission was to be headed by Prime Minister Jawaharlal Nehru, who recognized the necessity of long-term planning to meet the growing needs of the country.
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