Economic Survey Says Wealth Creation Benefits Everyone

Economic Survey 2019-20 was released on Friday in lavender (resembling the colour of the Rs 100 note). Explaining the colour and idea of this year's survey, Chief Economic Advisor Krishnamurthy V Subramanian said the choice is meant to symbolize the blending of the old with the new.

'Wealth creation' being the broader theme of the survey, the chapter, "Wealth Creation: The Invisible Hand Supported by the Hand of Trust," of Volume I speaks of how the liberalization of the Indian economy supports the economic model advocated in the country's traditional thinking of creating wealth.

"The exponential rise in India's GDP and GDP per capita post-liberalisation (in 1991) coincides with wealth generation in the stock market. Similarly, the evidence across various sectors of the economy illustrates the enormous benefits that accrue from enabling the invisible hand of the market," it said.

To explain the importance of wealth creation, the survey goes on to collate data on companies created by top 100 wealthy entrepreneurs in the country (as estimated by Forbes in March 2019).

"After excluding those with tainted wealth by applying several filters, we correlate the increase in the entrepreneur's wealth over a decade (31- Mar-2009 to 31-Mar-2019) with the benefits that accrued to several other stakeholders including employees, suppliers, government, etc."

The chapter shows in charts how wealth created by an entrepreneur has benefited various stakeholders over the surveyed decade. It also said that a common citizen also benefits from an entrepreneur's wealth creation as tax revenues "enable government spending on creating public goods and providing welfare benefits to the citizens."

The second half of the chapter stresses the need to build trust to support the invisible hand of the market.

"The events in the financial sector during 2011-13 and the consequences that followed from the same illustrate the second pillar - the need for the hand of trust to support the invisible hand. In fact, following the Global Financial Crisis, an emerging branch of the economics literature now recognises the need for the hand of trust to complement the invisible hand."

Loan defaults, audit failures, lack of standardisation in enforcement system/public databases and failure to detect opportunistic behaviour (as a result of limited resources in the hands of regulators) have created a trust deficit in the economy.

The survey suggests building trust with policies that empower transparency and effective enforcement using data and technology.