Shunning last year’s “over-optimism”, Economic Survey 2015-16 projects that the real GDP growth for the current financial year and for 2016-17 will be in the range of 7-7.75 per cent. The Central Statistics Office estimates that growth this year will be 7.6 per cent, lower than the 8.1-8.5 per cent projected in the last Survey.
There is anxiety that the economy is not realising its full growth potential, which in the long run is still around 8-10 per cent, says the survey tabled in Parliament on Friday.
The ‘sweet spot’ created by a strong political mandate is still “beckoningly there” for now but “not indefinitely”, lead author and Chief Economic Adviser Arvind Subramanian writes in the opening paragraph. Improved investments in education and health, where India fares the worst among BRICS nations, the survey says, and adequate attention to agriculture could realise the potential. “In the wake of four seasons of weak rainfall and consequent adversity, agriculture has served a wake-up call, demanding attention from policy makers.”
The medium-term potential can be realised over the next two to five years, if the “retrievable setbacks” and the “unfinished agenda” are undertaken, Dr. Subramanian told reporters.
In the unfinished agenda, he listed the Goods and Services Tax, strategic disinvestment, de-stressing of the balance sheet of both banks and private companies, and the rationalisation of subsidies. Stretched corporate and bank balance sheets are affecting prospects for reviving private investments, and so the underlying stressed assets must be sold or rehabilitated, he said.
The survey makes a case for unpopular reforms, such as bringing agricultural incomes in the tax net, rationalisation of fertiliser subsidies estimated at Rs. 75,000 crore (excluding arrears) and the withdrawal of tax benefits which, he argued, benefit mainly the rich.
Dr. Subramanian also recommends restricting the cooking gas subsidy to 10 cylinders from 12 at present, raising the levels of property tax and desisting from raising the income tax threshold.
‘Govt. will meet its fiscal deficit target’
The Economic Survey 2016-17, that was tabled in Parliament on Friday made several path-breaking recommendations including raising resources for recapitalising public sector banks by carefully leveraging the assets of the Reserve Bank of India and other regulatory institutions.
The survey unambiguously said the government would keep the fiscal deficit within the target of 3.9 per cent of GDP in the current year.
Though it argued both in favour of why the government should stick to the fiscal consolidation targets as also the gains that could become possible through a higher-than-target deficit, the survey contains a strong hint that the target for the next year will be met: “The Government needs to be in a strong position tomorrow to repay the debts it is incurring today…Credibility and optimality argue for adhering to 3.5 per cent of GDP fiscal deficit target”.
It recommended a review of the medium term fiscal framework.
