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Chief economic adviser Arvind Subramanian is expected to deliberate in depth on the economic logic of demonetisation and its consequences for the Indian economy. Photo: Pradeep Gaur/Mint
Chief economic adviser Arvind Subramanian is expected to deliberate in depth on the economic logic of demonetisation and its consequences for the Indian economy. Photo: Pradeep Gaur/Mint

Five things to watch out for in today’s Economic Survey 2017

From the impact of demonetisation to growing protectionism, here are five things to look out for in today's Economic Survey 2017

New Delhi: Chief economic adviser in the finance ministry Arvind Subramanian will present his third and probably final Economic Survey for 2016-17 on Tuesday, unless he gets an extension, a day ahead of the Union budget to be presented by Union finance minister Arun Jaitley.

After he took charge in October 2014, Subramanian has brought about major changes in the survey. Modelled on the International Monetary Fund’s (IMF) World Economic Outlook, the survey departed structurally from its predecessors and now traces the state of the economy in two volumes. Volume I discusses the outlook and prospects and volume II describes recent developments in the economy.

Subramanian has also departed from his predecessors by suggesting contentious policy prescriptions, maintaining that his recommendations are not constrained by politics and are more of a wishlist for the economy.

In his first survey for 2014-15, Subramanian proposed liberalization of foreign direct investment in retail—something the incumbent government has vehemently opposed—by holding that this could “create the possibilities for filling in the massive investment and infrastructure deficit which results in supply-chain inefficiencies".

Here are five things in this year’s survey to watch out for:

Demonetisation impact

Subramanian was criticized for missing in action in communicating about the costs and benefits of the demonetisation exercise by the government on 8 November, being the top economic adviser in the government. Apart from his brief comment that demonetisation is a “short-term challenge", he has not elaborated his views on the matter. One expects he will deliberate in depth on the economic logic of demonetisation and its consequences for the Indian economy.

Economic growth trajectory

While the statistics department has estimated the economy to grow at 7.1% in 2016-17 without factoring in the impact of demonetisation, the IMF has revised its growth projection for India downwards to 6.6% for 2016-17 and 7.2% in 2017-18, taking into account the impact of note ban.

Given the persistent global headwinds and negative growth in investment demand, Subramanian’s guidance about economic growth may give a clue about GDP (gross domestic product) and fiscal assumptions in Wednesday’s budget.

Former finance minister P. Chidambaram on Monday said he doesn’t expect the economy to grow higher than 6.5% in the next two financial years. “If the government projects a rosy picture of the economy, then every Indian has the right to question it," he said addressing a press conference.

Universal Basic Income

Subramanian has said that Universal Basic Income (UBI) that guarantees a minimum income to every citizen is an “exciting idea" and he will further elaborate his thoughts on the topic in the Economic Survey. There have been speculations about the finance minister announcing a UBI-like scheme in some form in his budget, after the Jammu and Kashmir (J&K) government became the first state government to commit to UBI for all citizens living below the poverty line.

In his budget speech earlier this month, J&K finance minister Haseeb Drabu said he would want to create a social security fund and provide a UBI to all those living below the poverty line through a direct benefit transfer system. However, Drabu put the onus on the Central government for initiating the process to implement UBI in the state.

Subramanian’s theoretical exploration of the idea will give an indication about the government’s preparedness, if at all it wants to implement a similar scheme.

Fiscal stimulus

In last year’s survey, Subramanian prescribed pump-priming the economy to revive investment demand at a time private investment was lagging behind, thus making a strong case for a path of less aggressive fiscal consolidation. However, Jaitley overruled his suggestion fearing backlash from rating agencies and stuck to his fiscal consolidation roadmap.

Things have only worsened since last year with capital formation entering negative territory and demonetisation affecting private consumption. It will be interesting to see if Subramanian reiterates his fiscal prescription, more so after the N.K. Singh committee has suggested new fiscal rules for the economy.

Concerns over growing protectionism

Amid signs of intensifying protectionism, especially after newly elected US president Donald Trump promised to follow an “America first" and “Buy American, Hire American" policy, there are concerns all over the world about its repercussions.

India has been concerned that any change in its H1B visa regime by the US government may immediately impact its information technology industry which has been the key driver of jobs in the services sector. Analysis of various dimensions of the issue at hand by the chief economic adviser and how India should be preparing to deal with it will be closely followed.

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