What can be learned from the Economic Survey in a time when information and data about the economy, public and private, are so freely available? In some ways, it has now become a much less important document than it used to be earlier. But in other ways, it continues to serve as a symbol: both of what the mood is within New Delhi's economic policy-making establishment - is the urgency of India's situation grasped? Are policy makers caught in a sense of denial? - as well as of the extent of the problems that the next day's Budget will have to address. If lucky, it will also hint at the directions for sound policy making in the medium term; the Economic Survey for 2009-10, for example, had a chapter on subsidy reform and transfers that seems since then to have become the conventional political wisdom.
The Economic Survey for 2012-13, which was released on Wednesday, partially answered these questions. The government is not completely in denial, admitting that there has been a fall-off in private investment thanks to administrative bottlenecks and monetary policy - though it continues to claim that the precipitous slowdown in India's growth over the past two years owes to some extent to external factors, especially weak external demand. There are two problems with this belief. First, it ignores the fact that world demand has in fact recovered slightly over the past year, sufficiently for many other countries to see an increase in trade. Second, it implies that an improvement in world demand is both necessary and sufficient for at least a slight uptick in growth. If, for example, the European crisis comes to a head and American policy makers fail to make the compromises necessary to postpone growth-strangling fiscal measures, then will not India's growth get even worse - instead of better, as the Survey expects?
The Survey acknowledges some of the problems with recent predictions, and makes an argument for saying that India must "move quickly to restore domestic balance". Predicting the future is particularly difficult at "potential turning points", it argues, implying that India finds itself at one of those points where policy can make a big difference to future growth. Hence it provides a far wider band for the next year's expected growth than is usual - between 6.1 and 6.7 per cent, it says. Many see even 6.1 per cent as too high; the scoffing is a sad sign of the lack of credibility that has been engendered by the government's consistently over-optimistic growth and inflation forecasts. So the question is, what policies need to be put in place to ensure that growth recovers? Here the Survey is sensible and worth listening to, and should make for the basis of a winning economic and political strategy. It points out, first, that macroeconomic stabilisation, of course, is the foundation on which any recovery must build. Second, it must shift from consumption-led to investment-led growth, through prioritising public and private saving. Equally significant is its recommendation that fiscal consolidation can be achieved with better results by raising the tax-to-GDP ratio by broadening the tax base, instead of an expenditure cut that might adversely affect development needs. And finally, growth must be revived through structural reform - reforms that ensure that growth dividends go into creating jobs. If not, the "demographic dividend" will become a curse. It is to be hoped that the Budget moves in the direction the Survey outlines.
