Chief Economic Adviser Arvind Subramanian’s first Economic Survey is notable for three main reasons. First, the overall sense of optimism that it exudes — and justifiably so — on the economy and its prospects in the medium term. Second, the emphasis on fiscal discipline, quality of expenditure and public investment, mainly in the Railways, to give a boost to the economy. And finally, the thrust on Prime Minister Narendra Modi’s pet schemes of Jan Dhan Yojana and Direct Benefit Transfers as means of eliminating leakages in the subsidy mechanism and ensuring that subsidies reach those who deserve it. Alongside, Mr. Subramanian has also raised a question mark over the new data series on GDP growth announced a couple of weeks ago, pointing out that India is not a ‘tiger economy’ yet as the data would have us believe. India’s is a recovering economy rather than a surging one, the Survey says, pointing out that the numbers seem difficult to reconcile with other developments in the economy. Other major economic data such as on industrial output and trade and agriculture, coupled with anecdotal evidence, point to an economy that is on the mend gradually and not to one that is galloping away on growth. That said, there is little reason to question the Survey’s conclusion that India is now in a sweet spot thanks to a government that has a mandate for reform and a benign external environment that has had a favourable impact on the current account deficit (CAD) and inflation. Indeed, if India does achieve the projected CAD of 1 per cent in 2015-16, that would be in large part due to the falling commodity prices, particularly of crude oil.
The Survey’s projection of a 8.1-8.5 per cent GDP growth in 2015-16 is credible given the present economic environment, though the bets would be more on the lower end of the band. Mr. Subramanian has reiterated his advocacy for public investment to act as a booster dose. And, interestingly, he has picked on the Railways as the “growth locomotive”, arguing that reversing the cycle of underinvestment in the Railways can do wonders to the economy. This ties in with this week’s Railway budget and its emphasis on long-term investment; in fact, it is tempting to conclude that the increase in gross budgetary support to the Railways by a third to about Rs.40,000 crore is evidence of this policy in action. Railways could be to the Narendra Modi government what roads were to the Vajpayee administration. The Survey has clear advice for Finance Minister Arun Jaitley: control expenditure through subsidy reduction, improve the quality of expenditure by spending more on investment and less on consumption and borrowing only for investment. Will Mr. Jaitley act on this in his Budget today?