A survey full of hope

This year’s economic survey starts on a sanguine note by acknowledging that the Indian economy is poised at a pivotal moment in history: a moment that comes but rarely in history. The survey opines that the clear political mandate for generating economic prosperity combines with a benign external environment to provide a good possibility of achieving double-digit growth in a sustainable manner.

add_main_imageThe fundamental objectives that embody the survey are two and are reflected in the broad theme of the survey: creating opportunity and reducing vulnerability. First, wipe every tear from every eye, which is reflected in theme of reducing vulnerability. Second, create opportunities for the young, the middle class and aspirational India, which captures the theme of creating opportunity. These twin objectives reflect the political mandate of the government. The benign external environment generates the possibility of achieving these twin objectives.

Having set out the broad theme, the survey then suggests an important departure from the policies of the previous government, where the largesse provided to various sections of society took precedence over creating the environment for sustained economic growth. The survey unambiguously focuses economic policymaking on generating growth in the economy. For example, the preface of the survey states: “Growth is the prerequisite for achieving many economic and indeed other objectives. Maximizing the benefits of growth will, of course, require complementary public actions, but without growth, possibilities across the income spectrum shrink. Growth versus distribution is, as it always should have been, a false choice.” This is a clear clarion call for focusing on economic growth. This shift in focus is what is most likeable about the survey. It signals a welcome change from the muddled economic thinking advocated and propagated by the National Advisory Council under the United Progressive Alliance government.NextMAds

The survey then asks the question: How can this growth be achieved? Given the expectations surrounding the budget to be presented on Saturday, the survey poses and addresses a question that everybody has been asking: Does India need big-bang reforms to generate economic growth?

Using cross-country evidence of the years after the second world war, the survey suggests that big-bang reforms usually occur during or after major crises. Moreover, the survey acknowledges pragmatically or pusillanimously – depending upon one’s view – that in a democracy such as India, where multiple actors and institutions possess the power to do, undo and block reforms, big-bang reforms are the exception rather than the rule.

Worryingly, the survey takes comfort in India today not being in a crisis, thereby arguing against the necessity of big-bang reforms. However, given the preamble of the country being poised at a pivotal moment in history, and the opportunity this moment provides, this tone provides an unnecessary license to the politicians to avoid brave decisions.

To the survey’s credit, however, it acknowledges rightly that a bold policy shift in areas under government control can combine with “a persistent, encompassing, and creative incrementalism” in other areas to cumulate to a big bang. Thus, the reforms that the survey advocates to achieve sustained double-digit growth fall into two categories: game changers, and several incremental actions cumulated through sustained push over the next few years.

While the game changers usually attract the attention of the bite hungry press or the momentum hungry stock markets, the survey opines that the second category can offer important drivers for growth if they are implemented with vigour.

The game changers are expected to be (i) the goods and services tax (GST), where building political consensus achieves paramount importance, (ii) financial inclusion under Pradhan Mantri Jan Dhan Yojana, where over 125 million new accounts have already been opened, and (iii) continuing the push to extending coverage of direct benefit transfers under the Aadhaar unique identity number programme.sixthMAds

In the short-to-medium term, the survey argues the need for stepping up public spending, especially in the railways, thereby offering the hope that this edition of the National Democratic Alliance (NDA-II) will be identified with progress of railways in much the same way NDA-I is identified with progress of roads.

In the medium term, the survey advocates the objective for fiscal deficit of 3% of gross domestic product and combining expenditure control with a shift from revenue to capital expenditures. The survey hopes these steps would generate the resources for public spending while not impinging on the country’s fiscal health. Given past experiences with inefficient public spending, only time will tell whether anything would be different this time.

Overall, what is likeable about the survey is its emphasis on ideas and perspectives drawn from academia and policy. Readers should at least read the first volume of the survey carefully.

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