Championing growth without a big bang: Ajit Ranade

The Economic Survey begins by saying "growth versus distribution" is a false choice. You need the former for the latter. Any resemblance to an older debate between two well-known economists is not coincidental. Indeed the very first page refers to the book authored by Jagdish Bhagwati and Arvind Panagariya titled Why Growth Matters, thus revealing the Survey's bias in that famous debate.

So, the survey explores ways of kick-starting high economic growth, to help "wipe every tear from every eye". It then finds that pro-growth big bang reform is not feasible in India, because there's no crisis to precipitate a big bang. Also, the levers of power are anyway dispersed vertically (states and the Centre), as well as horizontally (courts, comptroller and auditor general, government), making a big push difficult.

And yet, the extraordinary electoral mandate combined with the steep fall in oil prices offers a unique opportunity to come close to big bang. The survey refers to this possibility as "persistent, encompassing and creative incrementalism" cumulating in big bang. This language is suspiciously similar to a title used by a former economy czar of the UPA, but let that be!

This Survey breaks from tradition, and is organised into two volumes, with a nod to the style of IMF's World Economic Outlook. After all, both the chief economic advisor and the governor of the Reserve Bank of India, are senior and illustrious alumni of the IMF.

The first volume is forward looking, filled with 10 analytical chapters, focusing on issues like the fiscal framework, subsidy delivery reform, investment climate and ease of doing business, public investments, Make in India and the implication of the Finance Commission. The second volume is the conventional report card on the economy, described in nine chapters.

The Survey is supposed to be a foreshadow of what's coming in the Budget. But far too often such expectations have been belied in the past. Will this year's Survey too be a red herring? Most probably not, given that many reform signals have already preceded the Survey itself. It is heartening to note that the Survey bats for fiscal consolidation, even though many in the government and business have called for throwing fiscal caution to the winds.

By using the bounty of reduced oil prices, and hence lower subsidy outgo, it is possible to vastly increase public spending on infrastructure, while still keeping the promise of a deficit of 3.6 per cent of GDP next year. The Survey, inspired by Prime Minister Narendra Modi's penchant for acronyms, has two of its own. The first is JAM for subsidy efficacy. That's using the combination of Jan Dhan, Aadhaar and Mobile numbers, to target beneficiaries better, and reduce leakages.

The other is the 4D approach to solving banking distress: Deregulate, Differentiate, Diversify and Disinter. The focus on solving the banking tangle is insightful and spot on. The finance minister is well advised to implement 4Ds. Another interesting point made in the survey is to explain that Make in India does not mean more protectionism, but means less negative protectionism.

The case in point is the counter-veiling duty (CVD) from which many imported items are exempt, resulting in negative protection for domestic industry, plus a loss of Rs 40,000 crore for the exchequer. Why did it take this year's survey to point to this longstanding anomaly? The Survey is sprinkled with such insightful "blue boxes" throughout its Volume 1. One not-so subtle idea is a carbon tax, to nudge India's growth path onto a greener trajectory.

Ajit Ranade
Chief Economist, Aditya Birla Group