Ind-Ra: Economic Survey Calls for Reforms for Long-Term Growth

The economic survey for 2013-14 calls for reforms for long-term growth on three fronts - a low and stable inflation regime, tax and expenditure reforms and the need for a regulatory framework to steer the economy out of its current low growth phase. The survey also recommends addressing supply side bottlenecks in agriculture by creating a competitive national market for food as well as introducing reforms in subsidy rationalisation and the need to provide income support to farmers and poor households.

The survey also expects the Indian economy to grow in the range of 5.4% - 5.9% in FY15 (India-Rating's (Ind-Ra's) estimate: 5.6%). Its diagnosis of the problems facing the Indian economy is in line with Ind-Ra's assessment and most of its policy reforms are also in line with Ind-Ra's expectations. However, we believe inflation control should be the government's first priority.

The survey feels lowering of inflationary expectations will increase domestic household financial saving and will make resources available for investment. We expect the budget to make changes in tax exemption limits to help improve household financial savings.

The survey also recommends a new Fiscal Responsibility and Budget Management Act with better accounting practices, greater transparency and improved budgetary management. One of the major issues with Indian public finances has been the low level of revenue, which amplifies its debt/revenue ratios. We believe due to stickiness of expenditure, revenue augmentation by tax reforms is the best way to improve India's public finances.

The survey also emphasises the need for a simple, predictable and stable tax regime and advocates a single-rate goods and services tax, fewer exemptions in direct taxes, and a transformation of the tax administration. It further urges the government to focus on outcomes rather than on expenditure and inputs while providing public goods.

The annual economic survey presented in the parliament comprises of technical advice from the economic advisers in the ministry of finance. The economic survey presents an assessment of issues and challenges faced by the economy and suggests a policy prescription and reform agenda to the government to address these issues. Some prescriptions of the economic survey tabled in the parliament today could find a place in the budget which will be announced by the finance minister tomorrow.

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