Fancy riding a virtuous self-sustaining growth cycle under a clear blue sky with no worry in the world?
That’s the rough imagery the Economic Survey wants to paint and the chief economic advisor (CEA) even tweeted about adopting so-called blue sky thinking to take India towards the goal of being a $5 trillion economy.
Trouble is, the skies are anything but blue. In fact, till recently, the $5 trillion goal was meant to be achieved by financial year 2023-24 (FY24), or about five years from now. The Survey says the target is now meant to be achieved by FY25. The relaxed target may also be a stretch, since it assumes average annual growth of 8% in the next six years, even as growth in FY20 is projected at 7%.
Nevertheless, the CEA has pitched his ideas to fire up the economy.
The survey prescribes labour reforms, a minimum wage scheme and changes in policies to prevent small businesses from staying small.
But if we are searching for a radical solution to the economy’s problem, we won’t find them in the Survey.
Take for instance its prescription of maintaining policy certainty to boost investments. It is a no brainer that if markets can predict what policymakers would do, they would gladly put their whole money on the future.
Then the suggestion of improving farm productivity and encouraging diversification of revenue streams for farmers is an old one.
The survey insists that India can achieve the 8% growth it needs by building roads and ports faster. We have tried this just a few years ago.
We bungled the financing part of it but the survey doesn’t recommend anything specific on how to tackle this problem.
What stands out is advisor Krishnamurthy Subramanian’s argument that political stability through the decisive mandate should kindle the animal spirits of the economy.
But as VK Vijayakumar, chief investment strategist at Geojit Financial Services, notes, “If the survey’s hope that 'political stability can ignite the animal spirits and usher in a virtuous cycle of growth’ is to bear fruit, Nirmala Sitaraman should rise to the occasion and deliver a reform-oriented growth budget."
Reforms is where the trouble is. Economists fear that survey suggestions if implemented will have impact in the medium to long term.
That means short-term options to fire up the economy are hardly there, especially since the survey itself agrees to the broad view that the fiscal space to give the economy a boost is missing.
“Much of the things that the survey wants implemented are medium term in nature. This means if the Budget is built on this, there isn’t much we can expect in terms of a boost," said an economist on condition of anonymity. Subramanian’s blue sky thinking, then, just seems like another day dream.