The Economic Survey used to be an important source of information on the economy a few years back. But now with improved dissemination of data in general and introduction of mid-year review, there are hardly any revelations on the data front in Survey. Although the prognosis and recommendations of the survey seldom get picked up in the budget, it does serve as a fair benchmark to assess the budget.
The economic context for the survey has dramatically changed this year. Last year’s survey had hinted at the possibility of a global slowdown. That has now become a reality and the situation is much worse than was anticipated. The global crisis and its contagion have hammered India’s GDP growth down from the highs of over 9 per cent to sub 7 per cent. The uncertainty in economic environment led to frequent forecast revisions last year. Keeping this in mind, the Economic Survey provides a rather broad range of 6.25 per cent -7.75 per cent for GDP growth in 2009-10. I believe that the lower end of the range has higher probability of being achieved.
The survey tries to balance the need to address the immediate issues facing the economy and the medium term objectives of growth, equity and fiscal sustainability. The list of reforms that survey considers important has only expanded this time. As always this years’ survey too suggests certain reforms like raising the FDI limit limits, PSU disinvestments, fiscal and other reforms which in the last few years have been more in the nature of wishlist of what needs to be done. What survey misses out on is prioritising the key reforms in this long list. An interesting suggestion on the FRBMA front is the idea of targeting cyclically adjusted deficit. Implementing and monitoring it would, however, be quite challenging.
Budgets seldom dance to the tunes of the survey. But there is a difference this time. A positive election outcome has bolstered the sentiments and raised hopes of some of the pending reforms, including fiscal reforms, being carried out. Plus this is the first year of a stable government. This provides the finance minister an opportunity to come out with innovative and progressive policies to address the vital issues facing the economy. The swift action on the petroleum price front on July 1 gives the impression that government will be able to deliver on some of the critical areas such disinvestment, pension and insurance reforms while promoting inclusive growth.
The author is director and principal economist, CRISIL Ltd
