Naari Shakti, Nirvana and some JAM - A Snapshot of the Economic Survey

Presenting a snapshot of this year's Economic Survey

LOOK AND FEEL

• Inspired by the IMF’s World Economic Outlook
• Departs structurally from its predecessors
• Aims to be as accessible as a blog, without sacrificing on rigour
• Volume 1 discusses the outlook and prospects and topical policy concerns
• Volume 2 describes recent developments in the economy and statistical tables and data

TRIVIA

• Unlike the last time, when then finance secretary Arvind Mayaram had to step in to write the foreword, this time CEA Arvind Subrmanian took over
• CEA quotes Keynes to justify the survey’s focus on emphasising urgent over important
• Has liberal sprinkling of Hindi phrases such as Naari Shakti, Nirvana and Modi-esque acronyms such as JAM

STATE OF THE ECONOMY

• A political mandate for reform and a benign external environment to propel India to a double-digit growth trajectory
• Expects falling oil prices, increasing monetary easing and moderating inflation to favour growth
• Inflation showing declining trend due to government measures and falling oil prices
• FY15 GDP growth seen at 7.4%
• Using the new estimate for 2014-15 as the base, it expects growth at market prices of 8.1-8.5% in 2015-16

ISSUES AND PRIORITIES

• Concrete actions needed in the Budget to control expenditure via subsidy reductions, improvement in altering the mix between public consumption and investment in favour of the latter, and moving India towards borrowing only for public investment
• Broadly, the increase in fiscal space, including that gained from subsidy reductions and higher disinvestment proceeds, should be devoted to public investment

PUBLIC FINANCE

• Fiscal deficit target of 4.1% of GDP achievable
• The government provides both producer and consumer subsidies, totalling about Rs 1,25,000 crore
• Eliminating subsidies desirable, but not possible
• Prices and monetary management
• Price subsidies can distort markets in ways that ultimately hurt the poor
• The government and RBI need to conclude the monetary policy framework agreement to consolidate recent gains in inflation control and codify into an institutional arrangement the de facto practice

BALANCE OF PAYMENTS

• FY15 current account deficit seen at 1.3% of GDP
• CAD seen falling to 1% next year
• Muted export growth is a concern ; Key is reversal of subdued export performance

PRICES AND MONETARY MANAGEMENT

• Price subsidies can distort markets in ways that ultimately hurt the poor
• The government and RBI need to conclude monetary policy framework agreement to consolidate recent gains in inflation control and codify into an institutional arrangement the de facto practice

JAM INITIATIVE

• Subsidy leakages are large and universal
• Leakages undermine the effectiveness of product subsidies
• Eliminating or phasing down subsidies is neither feasible nor desirable unless accompanied by other forms of support to cushion the poor

THE JAM TRINITY

• Jan Dhan Yojana, Aadhaar and Mobile numbers allow the state to offer support to poor households in a targeted way

STALLED PROJECTS/PPP FRAMEWORK

• At end of the third quarter of FY15, for every Rs 100 of projects under implementation, Rs 10.3 worth of projects was stalled; the number for private sector stood at Rs 16
• Projects worth Rs 8.8 lakh crore stalled; of these, those worth Rs 7 lakh crore are in the private sector
• An independent renegotiation committee mooted to deal with this problem

BANKING MODEL

• Growth in size of private banks has slowed after the collapse of Lehman Brothers
• Paradox of private sector-led growth without private bank financing
• Wide divergences in performance paramaters within public sector banks
• 4D policy proposed: deregulate, differentiate within PSBs, diversify and disinter

RAILWAY FOCUS

• Strong case for channelling resources to transport infrastructure, with spillover effects on the economy
• Massive underinvestment; China invests 11 times as much in per capita terms
• Reform agenda: Structure of the railways, its adoption of commercial practices, rationalising tariff policies, an overhaul of technology

MAKE IN INDIA

• Preferred sectors are those that move towards high-productivity activities
• Convergence of both domestic and international is key
• Make in India should go hand-in-hand with ‘Skilling India’

NATIONAL MARKET FOR COMMODITIES

• APMCs levy multiple fees of substantial magnitude, which are non-transparent and are, thus, a source of political power
• State Acts create fragmented markets and commission agents rule the roost
• A central law is envisaged to override state laws, paving the way for a national market

CARBON TAX

• India has cut subsidies and increased taxes on fossil fuels (petrol and diesel), turning a carbon-subsidy regime into one of carbon taxation
• This has significantly increased petrol and diesel prices, while reducing annual carbon dioxide emissions
• Potential large gains yet to be reaped through reform in coal pricing and further reform in petroleum-pricing policies