A less optimistic Survey: Nitin Desai

Says it makes a case for monetary easing and its discussion of the pros and cons of departing from the fiscal consolidation target favours a relaxation

The Economic Survey, put out a few days before the Budget, is often examined for clues to what the Budget might hold in store. But, the fact is that the Survey is more an expression of the views of the government's professional economic advisers, particularly the chief economic advisor (CEA) in the finance ministry, than of the political leadership in North Block and South Block. This is even more evident now, as the Survey reports extensively on research studies from within and without the government. This has been particularly evident in the Surveys prepared under the past three CEAs - Kaushik Basu, Raghuram Rajan and Arvind Subramanian.

For policy watchers, the Survey matters because, even if its specific recommendations do not surface in the Budget, its assessment of the problems and prospects will have influenced the views of the Prime Minister and the finance minister (FM).

This year's Survey is clearly less optimistic than last year's and even warns that "global recovery may be faltering, while risks of extreme events are rising". But, it still projects growth at seven to 7.75 per cent and recognises the stimulus will have to come from domestic demand. It makes a case for monetary easing and its discussion of the pros and cons of departing from the fiscal consolidation target favours a relaxation. If the FM does depart from the fiscal target, the Survey has mobilised a substantial amount of research and cogent arguments to defend this. If he does not, the FM will come across as a 'fiscal hardliner' and that will impress the rating agencies!

The Survey is rich with policy suggestions for agriculture, non-performing assets in banks, bankruptcy law, subsidies, fiscal capacity, labour markets, power rates and a lot else. It goes well beyond the remit of the finance ministry and treads into areas the NITI Aayog should be handling. However, the research it mobilises to advance its suggestions is beguiling and one forgives this intrusion.

Last year's Survey talked of India being in a sweet spot, with sound macro fundamentals and a government with a strong political mandate. This year's Survey believes that may be even more true, with India standing out in the crowd because of a growth performance, moderate inflation and a low current account deficit. It recognises some setbacks, such as the impasse in the passage of a goods and services tax Bill. It calls for hard policy choices and a cooperative external environment will be required to convert opportunity into reality. What it does not and perhaps cannot, recognise is the erosion of the enthusiasm for the government in the electorate, the media and even in corporate board rooms, and the impact this will have on economic sentiment at home and abroad.

Nitin Desai
Former chief economic advisor