The precise role and import of the finance ministry’s annual Economic Survey released before the Budget remains somewhat fuzzy. As a review of the government’s performance for the past year and as a compendium of key events, policies and data, it is certainly a useful document for the researcher community. However, that alone can hardly justify the quantum of manpower and other resources that go into producing the hefty document. The policy prescriptions that the survey provides are usually eminently sensible but often do not consider the compulsions of real-politik. Thus, the recommendations provide a measure of how much the pressure of lobbies and vote-banks lead the government to stray from this ideal. This year, the Survey introduces a new chapter on the “microfoundations of inclusive growth” that spells out a new agenda of governance reform. One can only hope the UPA government will pay heed to this chapter and implement some of the key ideas it contains in such areas as fiscal management, subsidy reduction, food security, labour market reform and the creation of an enabling government.
The Survey for 2009-10 seems upbeat about the prospects for growth in 2010-11, pegging it in the range of 8.25-8.75 per cent and predicting a return to a 9 per cent plus trajectory by 2011-12. It seems satisfied with the fact that the economic recovery is becoming more broad-based. However, it identifies the relatively slack private investment activity and the fragility of the global recovery as key risks and thus suggests a gradual roll-back of stimulus. Predictably, given the precarious state of public finances, the issue of long-term fiscal sustainability gets its fair share of attention. Interestingly, instead of merely pontificating on the virtues of fiscal rectitude, the Survey draws on the recommendations of the Thirteenth Finance Commission and endorses the idea of targeting “caps” for government debt. The target for consolidated debt of the Centre and state governments put together is set at 68 per cent of GDP by 2014-15. This is a tall order given the fact that the current level is 82 per cent and needs a combination of considerable revenue buoyancy and strict expenditure discipline, something that politicians are seldom comfortable with. On the other burning issue of the moment, inflation, the Survey shares RBI’s anxiety that high food prices over a prolonged period could push up the general inflation rate. It also analyses earlier episodes of high food inflation and finds that large income transfers (such as the pay hikes for government employees in 1998-99) have led to food inflation. An interpretation could be that it is not supply shocks alone, a spurt in incomes and demand could be equally responsible for high food inflation. However, while analysing the past and listing the (obviously unsuccessful) steps at taming inflation and speaking in broad generalities, such as the need to boost agricultural growth to address food shortage, the Survey offers a new concept of “skewflation”, blaming the price rise largely on governmental mismanagement in a few commodities.
