 "Union Minister for Finance, Corporate Affairs and Information & Broadcasting, Arun Jaitley pose with group photo with the members of the Economic Division who assisted in the preparation of Economic Survey, in New Delhi")
The clear message that comes out of his script in Economic Survey 2015-16 is that finance minister Arun Jaitley barring surprises is likely to stick to fiscal consolidation. That would mean North Block is putting the ball in the court of RBI Governor Raghuram Rajan to do his dharma. So a rate cut on April 5th should be a fair expectation for the economy to look forward to.
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We will come to that shortly. Of almost equal import is the messaging that Subramanian has engineered with his reworked two volumes Survey. Of these the first is a forward looking one; the second one recounts the Indian economy’s performance for the year 2015-16, as Surveys generally do. Each of the chapters in the first volume is worth a careful read capable of providing sound guidance for policy action.
Of them the two most trenchant chapters are “Bounties for the Well off” and “The Fertiliser Sector”. It is rather a pity that most of what the Economic Division of the finance ministry has written will not be acceded to because of the political costs of those reforms. Yet they are worth recounting. The first one argues that subsidies for the well off cost the government about Rs one lakh crore. Within it are the subsidies from running a tax free small savings schemes—and as Subramanian argues the word small is a misnomer here. “The tax incentives that are given, for example, for savings, benefit not the middle class, not the upper middle class but the super- rich who represent the top 1-2% of the Indian income distribution”. It also makes a strong case for a higher tax on gold. Central government excise on it is zero compared with 12.5% for normal goods. “About 98% of this subsidy accrues to the better-off and only 2% to the bottom 3 deciles”.
Sample this from the other chapter. “In the three eastern states bordering Bangladesh, 100% of farmers had to buy urea at above MRP in the black market. Similarly, in Uttar Pradesh, which borders Nepal, 67% of farmers had to buy urea in the black market at above the stipulated MRP”. Rarely, if ever has the argument for eliminating subsidy on fertiliser been made more eloquently.
Or this: There is often facile discourse on gender budgeting in the course of government’s monetary allocation. But the chapter “Mother and Child” (again in the first volume) has eschewed those of measuring money with outcomes to instead make an ab initio compelling argument to invest in pre and neo natal care as investments for skilled Indians.
Citing a pilot case done by finance ministry with Oxford Policy Management it argues thus: “getting government funds into the hands of pregnant women is not a straightforward task, nor is it certain that the extra cash will be converted into more, better food and rest. Therefore, the cash transfer could be paired with education about how much weight a woman should gain during pregnancy and why weight gain during pregnancy is important. The cash transfer should be given in a single, lump-sum payment early in pregnancy to avoid delays, reduce administrative costs, and ensure that it is possible for the household to spend the money on better food during pregnancy”
And finally on rates:
The survey has scaled down the expectations for GDP growth for the economy to a range of 7-7.75% in FY17. For the current year, based on the advance estimates put out by the Central Statistical Organisation it has pegged the growth rate at 7.6%. Having got the 8% summit of the way, the reading from the Economic Survey’s estimate is that the government is better off sticking to a prudent fiscal road map than pursue adventurism. Subramanian argues that the government is on the right path of creating space for private investment, keeping the aspirations of government intervention low and instead stick to reforms like “bringing transparency in regulatory decisions, liberalizing FDI, major crop insurance programmes, financial inclusion via Jan Dhan Yojana, JAM and power sector reforms”. That should also please the markets as that means despite the inevitable soaring of state government borrowings the centre will be prudent in the debt markets.
Soumya Kanti Ghosh, General Manager and chief economist State Bank of India agrees that his reading of the Survey confirms that the fiscal deficit numbers “are likely to be just above 3.5% for next year”. But more than those highlighting the need for additional investment in human capital and reversing of slow-down in agricultural sector are the big takeaways this year, he says.
For domestic and foreign investors the messaging from the document which finance minister Arun Jaitley tabled in Parliament this morning is clear. As the author himself has put it: “For now, not indefinitely, the sweet spot created by a strong political mandate is still beckoningly there”.
