Economic Survey's case for reforms

The Economic Survey for the 2016-17 fiscal has struck a bullish note with a call to accelerate reforms, in the backdrop of a gloomy global outlook and the Central government’s unfinished agenda. It has forecast a growth rate of 7.0-7.75 percent, which is in line with most other predictions including the Central Statistics Office (CSO) estimate of 7.6 percent. But the Indian economy can go faster at 8-10 percent if only there is more investment in agriculture, education and health. The survey has pointed to four successive seasons of weak rainfall, the stalling of critical reform bills like the Goods and Services Tax, slowdown in disinvestment, ratiolisation of subsidies remaining incomplete, and stressed balance sheets of corporates and banks as some of the reasons why the country is not meeting its full growth potential. The vexed problem of fertiliser subsidies estimated at Rs. 75,000 crore finds particular mention — how inefficient producers, rich farmers and buyers other than farmers are still cornering most of the urea subsidy. At the same time, the survey has proposed restricting cooking gas subsidy to 10 cylinders from 12 at present. Warning that private investments will remain affected if corporates and public sector banks do not put their balance sheets in order — the Economic Survey has suggested that corporates may have to go for selling off or restructuring stressed assets, while the government could sell some non-fincial companies and invest the money in state-run banks. Overall, by 2018-19, banks are estimated to need capital amounting to Rs 1.8 lakh crores, of which Rs 70,000 crores are proposed to be injected through budgetary allocations in the current and succeeding years.

Arguing for an exit policy for inefficient firms which despite sluggish growth are neither sold off nor dismantled or liquidated, the Economic Survey seeks to make a case for the bankruptcy bill, which is likely to come up in Parliament this session. It proposes to bring agricultural incomes in the tax net, and thereby widen it from 5.5 per cent of earning individuals to more than 20 per cent. It has called for raising tax on property and gold purchases, as well as an end to tax exemptions that benefit the rich. With the prospects of oil prices remaining stable and inflation under control at 4.5-5 per cent in 2016-17, the survey has made a strong pitch for lowering interest rates to spur the growth engine. It has also expressed confidence that the government will mage to rein the fiscal deficit to 3.9 per cent of GDP in the current fiscal. However, with Chi having devalued its currency, the rupee may be in for a similar adjustment to keep Indian exports competitive, warns the survey. There are also chances that emerging economies will place curbs on capital outflows in the interest of stability, which in turn could impact growth impulses. ‘For an economy where exports have declined due to weak global demand and private investment remains weak, India’s economy is performing remarkably well,’ notes the Economic Survey. At the same time, the survey accepts that with India becoming ‘entwined’ with the rest of the world, its growth will be seriously affected ‘if the world economy lurches into crisis or slides into further weakness’. It has struck a sobering note by saying that the ‘sweet spot’ created by a strong political mandate is not indefinite; that domestic demand must be boosted to make up for weak foreign demand. But with a determined Opposition bent on cornering the Modi government on issues other than economic, the treasury benches will have a hard time pushing through reforms after the Fince minister is through with tabling his budget. How far can market liberalisation be pushed through with the exterl environment remaining bearish — will be a thorny question for this government to address if the country’s politics remains so confrontatiol.