The Budgetary process is ongoing and the government has launched Economic Survey. It is one of the cardinal documents because:
- It gives a detailed explanation of what all has happened in the recent past year and what can be the future strategies of the government of India. For example, the present economic survey launched 3 days back focussed on the various new schemes started by government like Jan Dhan Yojna and progress made on Aadhar and linking it with LPG subsidies.
- It also focuses on the business sense of the policy making and maintaining a sound investment climate for the domestic as well as foreign investors. The survey mentioned about the steps taken in terms of “ease of doing business” and removing the unpredictability surrounding the Minimum Alternate Tax (MAT). Steps like these really help improve investor sentiments.
- The survey also talks about certain failures like non implementation of Goods and Services Tax (GST) & elusive disinvestment targets.
- The survey is all round document that also focuses on sustainability goals and climate change; new & renewable energy strategies and social and physical infrastructure development that can ead to a new growth story.
The Present article will discuss various chapters of Economic survey in a crisp and eloquent manner in order to give a glimpse to the aspirants about the socio-economic dimension of India. The first chapter deals with Economic Outlook, Prospect and Policy Challenges.
The chapter talks about the present situation of the country w.r.t. the word and what can be the future prospects with regard to policy, growth and all such economic indicators. According to survey, India has a stable macro-economic credentials despite having an overall slowdown in the world economy due to extreme events (that may be, China’s deceleration, Brent oil price crash etc). For sustaining India’s growth story, certain efforts in the form of “reform to transform” shall be taken by the government like fiscal consolidation and incremental growth output through a series of measures.
- The economy’s performance with respect to other countries and wrt to its own mid term potential has been encouraging with a fair and steady progress on these fronts, respectively. This is despite the fact that exports have declined due to weak global demand and declining private investment.
- This performance is borne out of the fact that corruption has declined palpably due to transparent auction of public assets and non interference by the government. Liberalisation of most of sectors especially insurance has also felicitated this potential. Other efforts include, ease of doing business, fast-track settlement of MAT cases, new public investment program like infrastructure scheme, crop insurance scheme, JAM (Jhan Dhan, Aadhar, Mobile), eliminating LPG subsidy to cash based subsidy, new power sector reforms like UDAY scheme etc.
- However, certain things like GST remain elusive while the balance sheet of banks is a matter of concern. The rationalization of subsidies has not been achieved fully and substantial population has not given LPG subsidy voluntarily while disinvestment remains a bigger challenge. These factors are creating an impediment to the growth structure of economy which has a potential of 8-10% growth.
For achieving this potential, India needs a push in the form of various initiatives. Though the image of the government has changed from a regulator to facilitator and economy is now a market oriented one to large extent, there is still less competition in the market and entrepreneurship. Further, a well formalized industrial exit policy is required but bankruptcy law, rehabilitating stalled projects, and guidelines for public private partnerships that can help facilitate exit, are still in pipeline. The demographic dividend must be exploited and that requires investment in health and education.
Coming to geo-politics, there is a need for a cooperative federalism between centre and state where states formulate better service delivery mechanisms. India’s agriculture cannot be side-lined in the wake of better opportunities in manufacturing and services sector. The impact of climate change is visible and therefore requires re-orientation of current system of subsidies and incentives for equitable distribution.
India and External Outlook
India has not been impacted by the global turmoil to that extent. However, the risk and fragile outlook will have a complicate test of economic management (like fiscal consolidation, keeping interest rates lower for industrial growth and subsequent job creation). There has been an increase in the frequency of global crises. The intervals of crises like 2008 global slowdown, mini crises of 2013 and china’s provoked turbulence in 2015 direct towards the shortening of intervening time between crises. For having a hedge against such global turmoil, there is a need for more flexible exchange rate (Like China’s has played a card of keeping its currency depreciation in order to improve external outlook scenario leading to crises of China’s stock – it shall not happen) that could moderate the impact of such crises. Further, there is a need for major currency re-adjustment in Asia.
As the foreign demand is weak and thus exports have reduced, India need to find and focus on domestic sources of demand like local investment, new PPP models and consumption at household level. This will have an exponential impact of Indian economy as any external push and pull factors will have negligible impact on demand and supply side constraints. Further focus should be that Monetary Policy and Fiscal policy shall not add to deflationary impulses (this implies that the RBI shall keep interest rates low and the government shall focus on expansionary fiscal policy within the fiscal prudence limit).
The macro-economic resilience on Fiscal Deficit, Current Account Deficit and Inflation has been positive. The inflation has improved by 5.3% point due to steps taken by RBI. The Reserves have shown a minimal growth but can provide hedge against any currency bubble etc. The current account deficit is at confortable levels due to weak global crude oil prices which has remained at an average of $35/barrel and also poised to remain at a maximum of $45/ barrel in the upcoming year. In addition, remittances from gulf have remained consistent and more focus on “Act East Policy” has found good response.
The tax revenue both from direct ad non-tax has increased by almost 10%. The rationalisation of indirect tax structure through GST will open a new arena of tax reforms. The recommendations of 7th Central Pay Commission may add to inflationary pressure due to excess spending but it will also create demand in the local market for which India is thriving.
The Chapter also discusses about Agriculture and WTO agreement and SSM (Special Safeguard Mechanism) that will be discussed later with other Chapters. The trade policy also will be discussed in subsequent chapters.