Ahead of the Union Budget on Saturday, FM Arun Jaitley tables Economic Survey 2015 report; economic growth in India seen at 8.5 pct in 2015-16 – indicating scope for big bang reforms.
As per the Economic Survey 2015 tabled in Parliament today, India must adhere to medium-term fiscal deficit target of 3 percent of the country’s gross domestic product (GDP).The government should ensure expenditure control to reduce fiscal deficit, the report suggests. (Read Full Report: Economic Survey)
What is the Economic Survey of India?
The Finance Ministry of India presents the Economic Survey in the parliament every year, just before the Union Budget. It is the ministry’s view on the annual economic development of the country. A flagship annual document of the Ministry of Finance, Government of India, Economic Survey reviews the developments in the Indian economy over the previous 12 months, summarizes the performance on major development programs, and highlights the policy initiatives of the government and the prospects of the economy in the short to medium term.
This document is presented to both houses of Parliament during the Budget Session. It contains certain prescriptions that may find a place in the Union Budget which is presented a day or two later. It is authored by the Chief Economic Advisor in the Finance Ministry. There is no statutory obligation to present the document.
Download Links and content.
- Economic Outlook, Prospects, and Policy Challenges
- Fiscal Framework
- ‘Wiping Every Tear From Every Eye’ : The JAM Number Trinity Solution
- The Investment Climate: Stalled Projects, Debt Overhang and The Equity Puzzle
- Credit, Structure and Double Financial Repression: A Diagnosis of the Banking Sector
- Putting Public Investment on Track: The Rail Route to Higher Growth
- What to Make in India? Manufacturing or Services?
- A National Market for Agricultural Commodities – Some Issues and Way Forward
- From Carbon Subsidy to Carbon Tax: India’s Green Actions
- The Fourteenth Finance Commission (FFC) – Implications for Fiscal Federalism in India?
- State of the economy and Public Finance
- Monetary management and financial intermediation
- External sector and Service sector
- Prices, agriculture and food management
- Industrial, corporate and infrastructure performance
- Climate change and sustainabke development
- Social infrastructure, employment and human development
What is JAM Trinity, according to the Economic Survey 2015 and why is it emphasized?
A. Government subsidises many commodities like rice, wheat, pulses, sugar, kerosene, LPG, naphtha, water, electricity, fertilizer etc The estimated direct fiscal cost of subsidies is about Rs 3.78 lakh crore or about 4.24 per cent of GDP.Prime Minister Narendra Modi recently stated that leakages in subsidies must be eliminated without reducing the subsidies themselves. Price subsidies are often regressive, meaning “a rich household benefits more from the subsidy than a poor household”. It gives the example of good, electricity and kerosene, to name a few, and explains how price subsidies distort and lead to leakages( leakages means that the intended beneficiaries do not receive the benefit).
Economic Survey says ‘JAM Trinity’ of Jan Dhan Yojana, Aadhaar and Mobile numbers should be linked effectively for better transfer of subsidies to the intended beneficiaries. JAM has potential to “wipe every tear from every eye” with direct transfer of benefits.
It says the JAM allows the state to offer this support to poor households in a targeted and less distorting way. There are many other benefits as we discussed in the class like fiscal savings etc.
The survey also made a case that Post Offices can fit into the Aadhaar linked benefits-transfer architecture.
India has the largest postal network in the world with over 1,55,015 Post Offices of which (89.76 percent) are in the rural areas.
“Similar to the mobile money framework, the Post Office (either as payment transmitter or a regular Bank) can seamlessly fit into the Aadhaar linked benefits-transfer architecture by applying for an IFSC code which will allow post offices to start seeding Aadhaar linked accounts,” it said.
Economic Survey: Outlook and challenges:
A) Macroeconomic fundamentals have dramatically improved in 2014-15
1. Inflation has declined by over 6 percentage points since late 2013
2. Current Account Deficit down from a peak of 6.7% of GDP (in Q3, 2012-13) to an estimated 1% in 2014-15
3. Foreign portfolio flows have stabilized the rupee
4. After a nearly 12-quarter phase of deceleration, real GDP has been growing at 7.2% since 2013-14, based on the new growth estimates of the
B. Central Statistics Office
5. Notwithstanding the new estimates, the balance of evidence suggests that India is a recovering, but not yet a surging economy
6. Going forward inflation is likely to remain in the 5-5.5% range, creating space for easing of monetary conditions.
7. Using the new estimate for 2014-15 as the base, GDP growth at constant market prices is expected to accelerate to between 8.1 and 8.5% in 2015-16.
8. Private investment must be the engine of long-run growth.
9. There is a case for reviving targeted public investment as an engine of growth in the short run to complement and crowd-in private investment
10. India faces an export challenge, reflected in the fact that the share of manufacturing and services exports in GDP has stagnated in the last five years.
C. Fiscal Framework:
11. India must adhere to the medium-term fiscal deficit target of 3 percent of GDP
12. India must move toward the golden rule of eliminating revenue deficits
13. Expenditure control with growth recovery and GST will ensure that medium-term targets are met
14. The quality of expenditure needs to be shifted from consumption to investment.
D. Subsidies and the JAM Solution:
15. The direct fiscal cost of all the subsidies is roughly Rs. 378,000 crore or 4.2 percent of 2011-12 GDP.
16. 41% of PDS kerosene is lost as leakage and only 46% of the remaining 59% is consumed by poor
17. The JAM Number Trinity – Jan DhanYojana, Aadhaar, Mobile – can eliminate leakages and distortion
D. The Investment Challenge
18. The stock of stalled projects stands at about 7% of GDP, accounted for mostly by the private sector.
19. Manufacturing and infrastructure account for most of the stalled projects.
20. This has weakened the balance sheets of the corporate sector and public sector banks,
21. Despite this, the stock market valuations of companies with stalled projects are quite robust, which is a puzzle
22. Expectation that the private sector will drive investment needs to be moderated
23. Public investment may need to step in to ramp up capital formation.
E. The Banking Challenge
24. Indian banking balance sheet is suffering from ‘double financial repression’
25. Going forward, capital markets and bond-financing need to be given a boost.
26. Private sector banks did not partake in the biggest private-sector-fuelled growth episode in Indian history during 2005-2012
F. The Rail Route to Higher Growth.
27. Econometric evidence suggests that the railways public investment multiplier — the effect of a Rs 1 increase in public investment in the railways on overall output — is around 5.
28. However, in the long run, the railways must be commercially viable and public support must be linked to railway reforms.
G. A National Market for Agricultural Commodities
29. India has not one, not 29, but thousands of agricultural markets
30. APMCs levy multiple fees of substantial magnitude that are non-transparent
31. The Model APMC Act, 2003 could benefit from drawing upon the ‘Karnataka Model’
32. The key here is to remove the barriers that militate against the creation of choice for farmers and against the creation of marketing infrastructure by the private sector
I thank Sri Ram IAS and Financial Express for the data.