Economic Survey 2019-20. Opportunity Ignored?

The Economic Survey for 2019-20 was presented by Finance Minister Nirmala Sitharaman today in parliament. The survey, which is taken as a useful indicator of government intent, though not always ability to take action, is notable for what it talks about, and perhaps worryingly, what it ignores.

Thus, in a survey where there seems to be a rush to admit mistakes of the past and question their relevance today, The Essential Commodities act (ESA) and the Drug Prices Control Order (DPCO), both regimes that increased government interventions with apparently results opposite to what they intended were highlighted. In fact, the survey stresses that the government must re-examine needless intervention in the markets, something many players have argued applies to the renewable sector too, where ‘open bids’ have been constrained with multiple ‘conditions’ , be it price ceilings, domestic content requirements, and more.

What is worrying is zero mention of the power sector crisis, another legacy sector with highly confused policies, low focus on driving inefficiencies, and as the survey states, even lower understanding of the ‘hand of trust’ or the hand of the markets. The discoms crisis, whether the government takes action on it or not, has completely distorted market economics, and is in fact killing India’s contribution to key SDG goals, as well as opportunities.  The survey does highlight the government’s role as an  ‘Incubator’ with initiatives like the Solar  Risk Mitigation Initiative. Or an  ‘Accelerator’ by developing tools to aggregate demand for 1000 MW solar and 2.7 lakh solar water pumps.

There is possible hope however, that the government might face reality, and shift to a focus away from manufacturing, to assembly in India, as highlighted in the survey. Though the stress here is admittedly on network products.

That might mean less than the proposed duties we have been hearing about, after the safeguard duty expires on July 31, 2020. We have consistently advocated that beyond a point, manufacturing cannot be encouraged at the expense of consumers, as seems to be the case when duties cross a certain threshold. More interestingly, the jobs potential in manufacturing, as far as the solar sector grows, is no longer as attractive, with firms automating faster than most people expected, even in China. This has made them more competitive, making the idea of manufacturing even tougher in India.

However, ‘assembly in India’ does offer opportunities in key areas of the renewable energy  chain, from solar and wind inverters, to modules and more.

The indication of more flexible labour laws might augur well for solar installation firms too, especially rooftop solar.

So is Budget 2020 going to be a big disappointment? Don;t count on it, especially if we go by the Power Minister, Shri R.K. Singh’s assurances that ‘something’ will be done about the pain in the power sector. On the other hand, doing absolutely nothing, and continuing in that vein for the rest of the year, including in the matter of duties, strange rules and other conditions may not be a bad thing too.