School of Economics, University of Hyderabad (UoH), Hyderabad hosted a session on the “Economic Survey Outreach” (2014-15) by Dr. Arvind Subramanian, Chief Economic Adviser, Ministry of Finance, Govt. of India on May 05, 2015.
Dr. Subramanian started the session with the quote by John Maynard Keynes- “It is ideas, not vested interests, which are dangerous for good or evil.” Economic Survey 2014-15 has been released in a different format in two volumes. First volume provides analytical, forward looking and prescriptive outlook while the second volume provides summary of current economic statistics. Economic Survey should be seen as a repository of facts and data, a technical analysis and as an idea generating document for the economy.
Economic Survey 2014-15 attempts to capture the “Big Picture: India’s Sweet Spot”:
– A moment that comes “but rarely in history”.
– Political mandate plus benign external environment that brings possibility of achieving sustained double digit growth.
These need to be utilized to:
– Wipe every tear from every eye.
– Create opportunity for young, middle class and aspiring Indians.
But the question is how to achieve this sustained growth? Big Bang Reforms are the way forward. Our understanding of Big Bang Reforms goes as following:
– Post war cross country evidence suggests that Big Bang Reforms ocuur during or in the aftermath of a major crisis.
– Big Bang Reforms in robust democracies with multiple actors and institutions with the power to do, undo and block an exceptions rather than rule.
– With a bold policy shift in are under government control, plus “a persistent, encompassing and creative incrementalism” in other areas can cumulate to a Bang.
Recent trend has shown slow down and structural shift in inflation, better external situation and early sign of pick up in GDP numbers; inflation is forecasted to be 5% to 5.5% that gives a way for monetary easing. GDP growth rate for 2015-16 is forecasted to be 8.1% to 8.5%; India is recovering robustly and current account deficit condition has become better for India. However, in terms of export, we’ve not done well and is a bigger challenge; deteriorating external trade environment must be checked.
Dr. Subramanian further explained big ideas presented in the Economic Survey 2014-15. Push for public investment is first big idea. There are many investment challenges; balance sheet syndrome with India characteristic hold back private investment. Stalled projects, by value, account for 8% of GDP in 2013-14. Companies are in stress with poor balance sheet. Banks made good progress in 2000s but now, they are again in trouble owing to issues such as bad loans. Many countries have good bankruptcy laws where promoters, bankers, owners etc come together and find a way out when a business is not performing badly. In India, we don’t have effective exit ways. Our beaurocracy is not empowered to take decisions that are conducive for the public investment. These aspects present negative case for public investment and these institutional issues need to be addressed to facilitate public investment that is very needed for the economy. Dr. Subramanian told that skill development is an under-invested area and railways can also attract public investment in NDA-II regime as roads could attract public investment in NDA-I regime.
Second idea, Dr. Subramanian presented was about the fiscal consolidation path. He told that growth and fiscal consolidation are compatible with each other; we’re now looking for a target of 3.9% and not of 3.6% and there are sufficient rationale for this:
– Macro economic environments are very different for India now.
– India is still recovering, so why to follow pro-cyclical fiscal policy.
– Need space for public investment.
– Fourteenth Finance Commission (FFC) shrank the resource envelope for the centre.
– Finally, the fiscal indicators look much better from a consolidated perspective.
In recent times, states have been getting relatively higher share in central taxes and other transfers; States’ share in national tax is estimated to be 62% in 2015-16 against 555 in 2014-15. So, performance in terms of fiscal consolidation needs to be judged with comprehensive account of the whole nation with reference to the magnitude of consolidation, the quality of consolidation and the growth boost via public investment. Taking together estimates of the central government and seventeen state governments (whose data were available in public domain), we find that fiscal deficit stands at 6.5 % of GDP for 2015-16 against 6.9% of GDP for 2014-15; revenue deficit for 2015-16 is 2.4% of GDP against 2.9% of GDP for 2014-15; capital expenditure level is 5% of GDP for 2015-16 compared to 4.6 % of GDP for 2014-15. So, there is enough evidence of better financial consolidation in the country.
Dr. Subramanian emphasised upon promoting Competitive Federalism as the third big idea. Federalism is India’s future, we must sustain it with balance between equity and efficiency in our policies. Competitive federalism can be agent of change and can bring the much needed dynamism in achieving our developmental goals. States can act as “models” and “magnets” for different areas. For example, in recent past we’ve seen very smooth establishment of Nano plant in Gujarat that possibly no other state could do; Andhra Pradesh has shown way to e-Governance; Rajasthan has got good labour laws; Smt. Mamata Bannerjee has been trying hard to get investment to the West Bengal.As is evident, democratic politics is facilitating competitive federalism where states compete with each other for good. We need to further support this progressive move through facilitative decentralisation.
As fourth big idea, Dr. Subramanian presented the role of the JAM-accronym for Jan Dhan Yojana, Aadhar and Mobile, the trinity that can bring double nirvana for the country. As a fair economic practice, both the producers and the consumers should face the marketplace however, poor people should be given proper assistance from the state. He presented that cost of subsidy at present amounts to 4.2 % of the GDP. Although, these expenditure should bring much relief to the poor people, we don’t achieve satisfactory result due to leakages and inefficiencies in delivery mechanism. The JAM trinity can check these issues effectively and these supports can reach to the actual beneficiaries effectively.
The session was attended by students, faculty, staff and guests from the city. Dr. Y V Reddy former Chairperson, XIV Finance Commission and other officials from institutions like CII, IPE etc. also interacted with Dr. Subramanian. The Economic Survey Outreach is being organised in different parts of the country by the Ministry of Finance, GoI.
-Kumar Ashish, Research Scholar, School of Economics