27 February 2016 07:05:13 IST

Survey is grim but hopeful on economy

From 7-7.75% for FY17, sees nation growing at 8-10% in 2-5 years

Painting an optimistic picture of the economy despite the grim prospects for global growth, this year’s Economic Survey sees India getting on to the 8-10 per cent GDP growth trajectory over the next few years. To realise this potential, the report notes, the Centre needs to address, three critical issues — the transition from socialism to “marketism”, which the Indian economy struggles with; expansion of investment in people (health and education); and sharpening focus on agriculture.

The Survey, tabled by Finance Minister Arun Jaitley in the Lok Sabha on Friday, describes India as a “refuge of stability and an outpost of opportunity” at a time of global turbulence and volatility. It sees India recording GDP growth in excess of 7 per cent for the third straight year in a row in 2016-17.

India grew 7.2 per cent in 2014-15 and 7.6 per cent (advance estimate) in 2015-16. “There is still the promise of India due to accelerated structural reforms, competitive federalism (among) States and good economics becoming good politics all over India,” said Arvind Subramanian, Chief Economic Advisor to the Finance Ministry, author of the Survey.

Subramanian also saw export performance as holding key to India growing at 8-10 per cent in the next two to five years.

For 2016-17, the Survey pegs the GDP growth at between 7 and 7.75 per cent, a wider range than the 7-7.5 per cent range forecast in the mid–year economic analysis in December last year.

“India’s macro economy is robust and it is likely to be the fastest growing major economy in the world in 2016. For an economy where exports have declined due to weak global demand and private investment remains weak, India’s economy is performing remarkably well,” says the Survey.

Chakravyuha parallel

Using the Chakravyuha legend from the Mahabharata to illustrate the Indian economy’s transition from “socialism with limited entry” to “marketism without exit”, the Survey notes that an impeded exit comes with fiscal, economic and political costs.

The Chakravyuha legend describes warrior Abhimanyu’s ability to enter but not exit an intricate military formation.

Just as a market economy requires unrestricted entry of new firms, new ideas and new technologies, it also requires an exit route so that resources are forced or enticed away from inefficient and unsustainable uses, the Survey said.

The Survey said that the government’s initiatives including the new bankruptcy law, rehabilitation of stalled projects, proposed changes to the Prevention of Corruption Act as well as the expansion of the direct benefit scheme holds the promise of providing a significant boost to long-run efficiency and growth.

The Survey reckons that the 3.9 per cent fiscal deficit target for 2015-16 is achievable. It notes that the time is ripe for a review of the medium-term fiscal framework.

The Survey stops short of recommending whether or not the government should deviate from its set fiscal goals. It says there are very good arguments for a strategy of “aggressive fiscal consolidation” as well as a strategy of “moderate consolidation”.

In one of its more specific recommendations, the Survey suggested higher property taxes, which it said would “put sand in the wheels of property speculation.” Smart cities require smart public finance, the Survey noted, and “a sound property taxation is vital to India’s urban future.”