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Economic Survey: Economic Survey

Published on Sat, Feb 28,2015 | 15:15, Updated at Mon, Mar 02 at 17:52Source : 

By: Ranen Banerjee, Partner (Public Finance and Urban), PwC India.

The Economic Survey for 2014-15 has painted an optimistic picturefor India, pegging the FY16 GDP growth at 8.1-8.5%.

Despite the decline in the rate of gross domestic saving from 33.9% of the GDP in 2011-12 to 30.6% in 2013-14 and in the rate of investment from 38.2% in 2011-12 to 32.3% in 2013-14 and the decline in the primary sectors particularly agriculture from 3.7% to 1.1%, Survey remains optimistic about achieving a growth of 8.1-8.5% in the next year as against the existing 7.4%. It has kept the hope of achieving double digit growth in the medium term with high probability. While survey admits that the previous year's growth was almost purely a domestic demand driven growth, it is not understood how a declining primary sector, unless the rain revives it, would provide the much needed demand for the manufacturing sector in this stagnating external environment. The optimism in economic survey rests not just on the anticipated revival of animal spirits in manufacturing and services sectors thrust by Government's reform agenda and public investment (particularly in railways), but also from benign macro-economic conditions, fuel prices, inflation and favourable monsoons. Global fuel prices have become such volatile to pin the hopes of an economy!

Survey also puts a great deal of emphasis on reviving investments to achieve the growth path. Survey estimates that the total stock of stalled projects stands at Rs. 8.8 lakh crore or 7% of GDP. Survey presumes that an easing of monetary policy on the back of benign macro economic conditions can remove the credit constraints facing the private sector, while speedy regulatory clearances and reorientation and restructuring of the PPP model would enhance public investment. It is worth mentioning that NPAs of the banking sector have increased from 4.1 % in March 2014 to 4.5 % in September 2014 in just two quarters. Further five subsectors, viz. Infrastructure, Textiles, Iron & Steel, Mining and Aviation hold 54% of total stressed advances of Public Sector Banks. Revival of investments depends also to a great extent on the banks' ability to reschedule some of these NPAs and in tapping alternative sources of financing. Survey has rightly emphasised the need for "skilling India" for "Make in India" to happen and cautions that Indian growth should balance the nation’s comparative advantage in availability of low skilled labour with skill development required by future generations to take advantage of lost opportunities. Expanding the manufacturing sector to tap in the unskilled labour can only be wished for and is a distant possibility.

Survey is optimistic about achieving targeted fiscal deficits in the coming years. While fuel subsidies have come down, the food subsidy bill (upto January, 2015) stands at a whopping Rs. 107,823 crore during 2014-15 (or almost 1% of the GDP), showing an increase of 20% over previous year - the highest ever growth in the past five years.  This year also, as in previous years, the Survey has stood against price and product subsidies which are regressive in nature, benefitting mostly the richer amongst the poor and instead voted for income transfers. Survey has put its weight behind the JAM Number Trinity-Jan Dhan Yojana, Aadhaar and Mobile numbers- that would allow the State to deliver the subsidies to poor in a targeted and less distorted manner.

It is refreshing to see that for creation of National Common Market in Agricultural Commodities, survey has gone to the extent of suggesting liberalization in FDI in retail (which could create possibilities for filling in the massive investment and infrastructure deficit in supply chain inefficiencies), along with modification to the APMC controls through constitutional amendments.   

We eagerly await the budget announcements to see if any of the levers indicated by the Survey are being pushed by the Government.


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