New Delhi: The Indian economy has done better than expected this fiscal year, despite the twin challenges of GST and demonetisation pulling down growth.
The Economic Survey, which was tabled in Parliament this morning, paints a rosy picture of what all has gone right – GDP growth has been higher than expected which means the economy is doing well.
There has been a welcome formalisation of the economy thanks the GST and demonetisation exercises, with more transactions becoming digital and more tax payers coming in.
Inflation – that dreaded price rise monster - has been largely under control and the worrying increase in exports has started to reverse. Besides, India is well on its way to control the twin problems of over-indebted corporates and weak lending banks. From this prognosis, it seems to be a case of ‘’so far, so good”.
The doomsday predictions by the opposition of huge decline in economic growth, large scale joblessness and scary price rise – none of these seem to have come true, according to the Survey. India remains the second fastest growing economy in the world and will again regain its stature as the fastest growing next fiscal.
But not all is rosy. The trouble lies elsewhere. First, farmers are suffering due to declining incomes. Two, the fiscal deficit target for this year is unlikely to be met due to GST issues – which means we will earn less than what we thought we would at the beginning of the year and may need to borrow more. Three, we are still unable to spend adequately on welfare schemes for the poor, on education and public health – despite all the plaudits about our economic performance, the Survey has rightly highlighted how little we spend on these crucial areas. Last, but not the least, our obsession with sons – yes, you read that right – is also costing us dearly in terms of lost economic growth potential. Four, the Survey skirts the issue of impact of demonetisation on the economy – formal or informal – almost entirely.
Now let us look at the challenges facing the economy as we hurtle into a new fiscal, the last before the Narendra Modi government bows out to face general elections. Chief Economic Advisor Arvind Subramanian has pointed towards persistently high global oil prices and a sharp correction in the already elevated price s in the stock markets as two main concerns going forward, in the Survey.
Remember, each dollar increase in the prices of global crude oil means a decline in India’s GDP since more money has to be spent on the same amount of oil. Rising oil prices also immediately stoke inflation and put obstacles in the path of achieving the fiscal deficit target. The Survey notes that oil prices declined by about 10% in 2014-15 (the first year of this government) and then by a substantial 46% the very next year. They rose 11.4% in 2016-17 and are expected to be up further by about 16% this year. If the rise continues, India faces a significant challenge in sticking to its economic targets.
No wonder then that the ministry of petroleum and natural gas has already apparently sought a relief in excise duty on both, petrol and diesel, during the Budget. Since mid-December, pump prices of Petropol have gone up by more than Rs 3 a litre and diesel too is running at al-time highs.
The second warning of the CEA is about an overheated stock market. What he is saying makes eminent sense, since India’s markets have seen sudden and substantial reallocation of wealth from gold and real estate. People are increasingly parking their wealth in the market and it could crash, suddenly, stressing not just the individual investors but the entire country’s economy. Does this mean the government will bring in additional taxes in the Budget for capital gains – this remains to be seen. But overheated stock markets should not be ignored.
Now, let us look at our kisan. Climate change is likely to increase the burden on the already stressed agro economy - The Survey says that the effects of climate change could adversely affect farmers’ income by as much as 20 to 25 percent in the medium term, since Indian farmers still majorly rely on monsoons. So where does this leave Prime Minister Modi’s vision of doubling farmers’ income by 2022?
"Minimising susceptibility to climate change requires drastically extending irrigation via efficient drip and sprinkler technologies, and replacing untargeted subsidies in power and fertiliser by direct income support," the survey said, while calling for review of cereal-centric farm policy.
Are these indications that the Budget would have radical measures to boost agricultural infrastructure, raise farm productivity, and support the farmer in other ways? Frankly, election year or not, the government doesn’t have much of an option other than to listen to the distressed farmers this time. Finance Minister Arun Jaitley would do well to be less cautious on fiscal parameters and think more of farmers in distress. Area under sowing for some crops is down, price realisations are notoriously dwindling – who can forget reports of farmers throwing away potatoes by the sack full earlier this month since all they were being paid for a kilo was 50 paise?
While on the one hand, the farmers need urgent attention of the policy makers, large companies struggling under mountains of debt also need continued focus. This year saw the implementation of the new insolvency and bankruptcy process, which placed strict time limits and various restriction on promoters/lenders of debt laden companies. The new Insolvency and Bankruptcy Code (IBC) has provided a resolution framework that will help corporates clean up their balance sheets and reduce debt.
In a related process, the government has also started capitalising weak bank balance sheets so that there are no shocks in the banking system. These twin measures are welcome and need to be followed through. Unviable banks should shut shop and sensible treatment of corporate debt should mean the private sector participation in economic progress increases.
That just leaves our continued below-par performance on the social indices. We spent only 6.6% of our GDP on welfare of the poor, education and health this year. Yes, it was higher than the 6% spent each year between 2012-13 and 2014-15, but still quite inadequate. The Survey notes we do not have "enough fiscal space to increase the expenditure on critical social infrastructure like education and health". It has also devoted an entire chapter to the huge gender imbalance which happens largely due to Indians’ preference for sons. Subramanian says that we have 25 million “unwanted” girls – girls who were born as parents kept hoping for boys. Unless we value our women, not only will gender issues keep festering, our full economic growth potential won’t be realised.
(The author is senior journalist)
Comments
0 comment