The Economic Survey 2013-14, the flagship annual document of the Ministry of Finance which reviews the performance of the economy over the previous 12 months, released a day before the Union Budget, facilitates a better appreciation of the mobilisation of resources and their allocation in the Budget. Experience suggests that the Survey, while flagging the key economic issues of the day, can offer advice and suggestions, which the Finance Minister may or may not incorporate in the Budget. The point has also been made that it is for the first time that the Survey has been prepared without the guidance of a Chief Economic Adviser. For all its limitations, however, the Economic Survey 2013-14 has done a commendable job in delineating the contours of an economy that has been struggling for more than two years to grow at more than 5 per cent. A change in government has certainly brought about a sharp variation in sentiment, but it is too early to assess the impact on the real economy. Joining the Reserve Bank of India and many professional forecasters, the Survey expects GDP growth during the current year (2014-15) to be above 5 per cent. However, poor monsoons, a deteriorating external environment, persistent inflation and a poor investment climate pose major risks to growth and macroeconomic stability. In the event, GDP growth is likely to be at the lower end of a 5.4 to 5.9 per cent band.
Economic growth during 2013-14 was dragged down by industry, which grew at just 0.4 per cent. A deceleration in manufacturing output and contraction in mining activities have been primarily responsible for the sluggishness. Reversing the serious downward trend in industry has been a top priority for the government. The budget is sure to take note of ongoing initiatives and also bring in new ones in this vital area. Inflation has come down but is still above the RBI’s comfort zone. Food prices have shot up very recently. The balance of payments position has improved considerably on top of a vastly improved current account. However, much of the improvement in the matter of the trade deficit is due to lower imports of non-petroleum products, a sure sign of the slowdown. A bigger challenge lies in the area of fiscal consolidation. The Survey has suggested a new FRBM legislation as well as rationalisation of subsidies, among other measures. The previous UPA government’s claims of pegging the deficit at 4.5 per cent in 2013-14 and targeting an ambitious 4.1 per cent for the current year have become controversial, and at the very least cast doubts on the quality of fiscal estimates. These are pitfalls which the new Finance Minister will do well to avoid.