There was no Economic Survey accompanying the interim Budget in February. So, this is the first official glimpse into how the economy fared last year. This Survey confirms what we already know - the economy has been slowing for four consecutive years, and has clocked sub-5 per cent growth for two years. Growth in manufacturing has been nearly zero during FY13 and FY14. This is a bit puzzling as the investment rate has been about 30 per cent of GDP (admittedly below its 2008 peak of 38 per cent). The Survey says structural factors, including slow decision-making, ill-targeted subsidies cramping space for fiscal expansion, and high food inflation, caused investments to be unproductive.
The first two factors were highlighted in the annual report of RBI last year, which also explained why the capital output ratio had deteriorated. The Survey blames intermediaries for high food inflation, making the case for dismantling of the APMC. The second chapter of the Survey is usually the most awaited. It's called "Issues and Priorities" and contains policy recommendations, which are supposedly harbingers of what's contained in the minister's Budget speech. Like all previous Surveys, this one too is squarely pro-reforms (who isn't?). It says that government's stance should by default be "everything is permitted, unless explicitly prohibited", sort of like a very liberal negative list of what cannot be done. This would dismantle licence and inspector raj. The Survey uses this principle ("permitted unless prohibited") to advocate drastic simplification of FEMA (1999), particularly capital controls. There is a considerably lengthy discussion on the draft Financial Code developed by the FSLRC, and the Survey seems to be advocating adopting the Code. The discussion on the food economy in the second chapter is excellent. It correctly states that liberalisation and the competition paradigm seem to have bypassed agriculture. The Survey calls for the setting up of a statutory Productivity Commission, which would review laws, organisation structures, and process designs, to improve productivity. The Survey does question the role of the Planning Commission, but is silent on what should be done about it.
Ajit Ranade
Chief Economist, Aditya Birla Group
Chief Economist, Aditya Birla Group
