Use strong mandate to deliver on reforms and revive growth, says CEA K. Subramanian
The overarching theme of this year’s survey is wealth creation and the policy choices that enable this
New Delhi: A day before finance minister Nirmala Sitharaman presents her second Union budget, the Economic Survey, authored by her chief economic adviser, suggested the government cut subsidies, boost spending and reform land and labour laws to help the economy rebound to 6-6.5% growth in the next fiscal year.
The survey, tabled in Parliament on Friday, also advocated reducing spending on subsidies, especially on food, to create fiscal space for additional spending in areas such as infrastructure development.
“The government must use its strong mandate to deliver expeditiously on reforms which will enable the economy to strongly rebound in 2020-21. Reforms in land and labour markets may further reduce business costs. As the proportion of small and marginal holdings is significantly large, land reform measures like freeing up land markets can help farmers in improving their income," the survey, prepared by K. Subramanian, said.
Earlier this month, the International Monetary Fund projected India’s growth to accelerate to 5.8% in 2020-21 from the estimated 4.8% in the preceding year, after sharply paring its earlier projections “owing to stress in the non-bank financial sector and weak rural income growth".
The Economic Survey said its own projection is fraught with downside risks such as continued global trade tensions, worsening US-Iran geopolitical situation, increase in short-term interest rates in advanced economies, slow progress in implementation of the insolvency and bankruptcy code, and stagnation in gross domestic savings rate.
However, upside risks, such as bottoming out of global trade, a turnaround in housing, favourable global sentiment toward India, and better implementation of the goods and services tax, are expected to boost economic growth.
D.K. Srivastava, chief policy adviser at EY India consultancy, said the survey’s projected FY21 growth of 6-6.5% may prove to be optimistic unless backed by a strong fiscal stimulus in the budget and the meeting of investment targets specified in the National Infrastructure Pipeline, both by the central and state governments.
The survey said the economy is set to revive in the second half of 2019-20 mainly on account of ten positive factors. It listed them as: “picking up of Nifty (National Stock Exchange’s Nifty index) for the first time this year", an upbeat secondary market, higher foreign direct investment inflows, build-up of demand pressure, positive outlook for rural consumption, rebound of industrial activity, steady improvement in manufacturing, growth in merchandize exports, higher build-up of foreign exchange reserves and positive growth rate of GST revenue collection.
Even as concern mounted about the economic impact of the coronavirus contagion, Subramanian said its impact on India’s economy will be negligible.
The overarching theme of the survey this year is wealth creation and the policy choices that enable this.
India’s aspiration to become a $5-trillion economy, it said, depends critically on strengthening the invisible hand of markets together with the hand of trust that can support markets.
“The invisible hand needs to be strengthened by promoting pro-business policies to (i) provide equal opportunities for new entrants, enable fair competition and ease doing business, (ii) eliminate policies that undermine markets through government intervention even where it is not necessary, (iii) enable trade for job creation, and (iv) efficiently scale up the banking sector to be proportionate to the size of the Indian economy," the survey said.
It proposed a new programme, “Assemble in India", to be integrated with “Make In India" and focusing on labour-intensive exports that could potentially create 40 million well-paid jobs by 2025 and 80 million by 2030.
“China’s remarkable export performance vis-à-vis India is driven primarily by deliberate specialization at large scale in labour-intensive activities, especially ‘network products’, where production occurs across global value chains operated by multinational corporations," it said.
The survey said government intervention hurts more that it helps in the efficient functioning of markets. Giving the example of the pharmaceutical industry, the survey said government interventions often lead to unintended consequences such as price increases, when compared to markets that are unregulated.
However, President Ram Nath Kovind, in his address to the joint sitting of Parliament at the beginning of the budget session, emphasized the need to buy local products, indicating the government increasingly wants to promote Swadeshi.
“My government believes in the mantra of ‘buy local for a better tomorrow’. I urge every representative of the people, from panchayat level to the Parliament, and every government in the country, to transform the philosophy of ‘buy local for a better tomorrow’ into a movement. I also urge every Indian to give priority to local products. By using locally manufactured products, you will be able to help the small entrepreneurs in your area to a great extent," Kovind said in his address.
Rajeev Gowda, senior Congress leader and Rajya Sabha member, said even though India is facing a very difficult time, the Economic Survey appears to be disconnected from this grim reality.
“The job of the Economic Survey is to tell us about the actual situation of the fisc. Its purpose is to guide the government by showcasing reality and realistic policy options. This survey comes nowhere close. Will this survey inspire trust amongst investors? No. Do the people of our country deserve to know what the actual situation is? Yes," he added.