<b> Mukesh Butani:</b> Experiment with traditional appraisal

Marking a new beginning in India’s approach to the annual budgetary exercise, the finance minister tabled the Economic Survey followed by a presentation by the Chief Economic Advisor, Arvind Subramanian. The release of the economic health card was a keenly awaited event, given its significance in light of the demonetisation move, indicative performance for financial year 2018 and the impact of significant reforms in the area of the Goods and Services Tax (GST).      

This Survey findings clearly resonates an intent to be different in terms of the approach and findings. The Survey is divided into three sections — The Perspective, The Proximate, and The Persistent.  While the first section documents recent developments and the near-term outlook, the second section details out the pressing near-term issues and the possible strategies to address  these. Section-III covers the medium-term horizon and articulates the medium-term issues and resolution approaches.

The Survey provides an interesting read on eight facets of India, including a brief comparison with China, to ‘entice’ the reader. These facets underline the government’s views as to why the Indian economy cannot be measured using standard benchmarks.

Taking cues from recent statistics published by the Central Statistics Office and global agencies, such as the World Bank and the International Monetary Fund, the government’s projections for gross domestic product (GDP) growth were anticipated to dip due to inadequate pick-up in private investment. The Survey does not shy away from accepting that demonetisation has had short-term (negative) impact on the economy, but the loss of momentum is likely to be regained only with affirmative actions, including, expeditious re-monetisation, reforms in the area of GST, stamp duties and curtailing an over-zealous tax administration.  

Departing from the tradition of ‘exactitude’, the Survey provides a range of 0.25 per cent to 0.5 per cent reduction to the baseline estimate of 7 per cent GDP growth. Further, GDP growth projections for 2017-18 are plotted in the range of 6.75 per cent to 7.5 per cent. The Survey, interestingly, questions the methodology followed by international credit rating agencies for assessing the economic growth. 

The fiscal deficit target (of 3.5 per cent of GDP) for 2016-17 still seems within reach, given the windfall from demonetisation, higher tax collections under the Pradhan Mantri Gramin Kalyan Yojana 2016 (labelling as one time) and additional revenue measures in excise duty and service tax resulting in tax buoyancy. On the fiscal deficit target for 2017-18, we’ll need to wait for the Finance 

Minister’s Budget address, indicating a possible delay in meeting the 3 per cent target.  

The Survey points to Budget expectations and makes out a case for reduction in tax rates, stamp duties and implementation of safeguards to curtail around over-zealous tax administration, as key steps for augmenting economic growth.   Despite a volatile global market, it is heartening to note that India has managed to clock record high foreign investments during 2016-17; accounting for approximately 3.2 per cent of the GDP. The foreign exchange reserves Statistics up to December 2016 sit at a healthy level of $360 billion primarily on account of the net positive capital flows. In context of the government receipts, the Survey articulates challenges faced by the exchequer in relation to tax revenues and non-tax revenues on a go-forward basis. It is expected that with pushing out of tax reforms will address the challenge in the near to medium term. The Survey captures debate on universal basic income (UBI) concept, which suggests that the government could further evaluate this alternative implementation.

The CEA’s announcement that a detailed review of 2016-17 performance in summer is suggestive of difficulty in assessing the growth rate. The Survey warns of stress factors, particularly rise in oil prices, weak private investment and external factors on global interest rate and unpredictable US fiscal and monetary policy. In particular, the Survey points out downside risks to the range-bound forecasted growth of 6.75 per cent to 7.5 per cent, particularly with respect to extent of demonetisation and impact of cash shortage on agricultural products. 

Considering the form and manner of presentation of the Survey, it is safe to say the government has consciously chosen to experiment with the traditional publication of annual economic performance, in an attempt to make the public dialogue more dynamic and contemporary.

With inputs from Vishwendra Singh, Associate Director