Economic Survey primer

The Survey had a series of short notes on economic policy issues. A few of them are excerpted below:

On Fiscal consolidation 

• Advanced countries have embraced fiscal activism, giving a greater role to counter-cyclical policies and attaching less weight to curbing the debt stock. But, India’s experience has taught opposite lessons
• India’s fiscal stance has an in-built bias toward higher deficits, because spending rises pro-cyclically during growth surges, while revenue and spending are deployed counter-cyclically during slumps
• It (India's experience) has reaffirmed the need for rules to contain activism, so as to rein in excessive spending during booms and inordinate deficits during downturns, a pattern that contributed to both recent episodes of severe macroeconomic instability (1991 and 2013)

Impact of demonetisation 

• An uncertainty shock because economic agents face imponderables related to the impact and duration of the liquidity shock as well as further policy responses (causing consumers to defer or reduce discretionary consumption and firms to reconsider investment plans)
• Agricultural sowing, passenger car sales, and overall excise taxes bear little imprint of demonetisation; sales of two-wheelers show a marked decline after demonetisation; credit numbers were already looking weak before demonetisation, and those pre-existing trends were further reinforced after November 8
• If nominal GDP growth declines, corporate and indirect tax revenues of the Centre could decline but so far there is no clear evidence

On Universal Basic Income 

• The Mahatma as the embodiment of universal moral conscience would have seen the possibility of UBI in achieving the outcomes he so deeply cared about and fought for all his life
• As a fiscal conservative he (Mahatma) would permit UBI only if convinced that macro-economic stability would not be jeopardised
• Recognising the difficulty of exit, the Mahatma, as an astute political observer would have anxieties about UBI as being just another add-on government programme. But on balance he may have given the go-ahead to UBI

Outlook for 2017-18 

• Since no clear progress is yet visible in tackling the twin balance sheet problem, private investment is unlikely to recover significantly from the levels of FY17
• Currency shortages also affect supplies of certain agricultural products, especially milk, sugar, and potatoes and onions
• There are risks from the possible eruption of trade tensions among the major countries, triggered by geo-politics or currency movements

On GST 

• The transition to the GST is so complicated from an administrative and technology perspective that revenue collection will take some time to reach full potential
• Implementation of the GST, follow-up to demonetisation, and enacting other structural reforms should take the economy towards its potential real GDP growth of 8 per cent to 10 per cent
• Complementing demonetisation with more incentive-compatible actions such as bringing land and real estate into the GST, reducing taxes and stamp duties, and ensuring that the follow-up to demonetisation does not lead to over-zealous tax administration