Even more than last year, the Survey was awaited with anticipation. Not just as a strategy document in dealing with a situation where political compulsions have aggravated a challenging economic environment, but also for the strong analytical underpinning it has acquired under the aegis of the current chief economic advisor (CEA), with a mix of science and intuition informing the fairly bold policy recommendations peppering the chapters.
The signature chapter since the past couple of years has been the ‘micro foundations’ of macro economics, serving to turn the spotlight on the social, political and institutional milieu shaping the economic outcomes. This year, the segments include some novel thinking on currency interventions by central banks, and an elaboration of the new credit methodology for sovereigns (Comparative Ratings of Sovereigns, CRIS) developed by a team of researchers headed by the CEA (India, incidentally, does quite well in both the levels and improvements in its CRIS rating, certainly much better than on measures by the global big three ratings agencies).
There’s a wealth of insights scattered across the document in text boxes, footnotes and the main body: More efficient targeting of subsidies, better public service delivery, coordination of project complementarities, design of contracts, the role of prices and so on. The CEA’s oft-emphasised passion for improving public service delivery mechanisms, particularly to maximise the impact of subsidies, is detailed in a box on ‘Aadhar’s Progress’.
The Survey’s message has been reinforced by the Reserve Bank’s monetary policy review, with the two pretty much endorsing a common view on the growth-inflation tradeoff. Maybe the Survey is just a bit more inclined on the side of growth. Inclusive growth is its leitmotif: “The govt is in a position to turn its attention more exclusively to inclusive growth…primary concern to advance the economy’s productivity and improve income distribution...during the current year, all hands have to be on growth.”
In addition, the role of industry as the main “driver of growth and provider of jobs” in emerging economies is highlighted. The need for revitalising industry, hardest hit in the current slowdown, is also clear. How? Improving the infrastructure to increase access to freight and ports, sure, but also explicitly to “lessen the need for interfacing with administration”. How much the enabling and simplifying provisions of the National Manufacturing Policy can be implemented will be critical for this.
GDP growth for 2012-13 is projected to be 7.6 per cent in 2012-13. Is this realistic? Given current conditions and, more important, expectations, probably not. But it is certainly not beyond the pale. Deep monetary policy easing by the RBI, lower market borrowings by the government, allowing greater room for private investments, consequently increasing savings, measures to improve access to fuel and raw materials and a less volatile global environment improving access to cheaper capital can all push the growth rate rapidly up, particularly if aided by a normal monsoon.
Bringing us to the other observation, the need for coordinated response of monetary, fiscal, industrial and labour policies. The fiscal side is the second strong emphasis of the Survey. “In the interest of medium to long-term growth...the govt must effect rapid fiscal consolidation”. We emphatically concur. The current slowdown has been predominantly driven by a drop in investment, ostensibly most in manufacturing and infrastructure. The link between the fiscal gap, presumed inflationary costs (as has been underlined by RBI), monetary policy response, cost of funds for private investors and investment slowdown is obvious.
The Economic Survey has always been a rich source of compiled information on policy and economic developments, but it has increasingly begun to provide a coherent analytical scaffolding for assessing these developments and, consequently, to focus policy attention on areas of concern. How quickly and deeply these policy recommendations are implemented will influence India’s growth trajectory and its sustainability.
The views are the author’s own and do not necessarily reflect those of the institution to which he is affiliated
Saugata Bhattacharya
Senior Vice President, Business and Economic Research, Axis Bank
