Indian Economic Survey – Fact or Fiction?

Economic Survey – Facts

The pre-budget Economic survey gave a rosy picture indicating the return of happy days for the economy. The GDP growth will take up the momentum to reach somewhere between 6.1% and 6.7% in 2013-14, higher than the current level of 5%. The survey indicated WPI Inflation to fall to 6.2-6.6% by March, despite the price hike in commodities like Diesel, etc. Also a hike in the fare of transporting system like Railways, Airways, Freight rates etc. did not much harm the macroeconomic indicator. Medium term price trend is in a downward spree especially for the non-food manufacturers.

Adding to this, positive news came when World Bank predicted a fall in global commodity prices in the year 2013 and 2014, thus making a moment of rejoice for the individuals. The commodity prices are likely to fall in the year 2013 and 2014 (excluding metals) which will definitely boost investors’ confidence. This will also help in promoting manufacturing activity to a greater extent. A reduction in price of commodities will definitely call RBI for a rate cut again in the year.

It is likely that the Inflation coupled with Current Account Deficit will be kept under strict watch so as to bring down the fiscal deficit for the economy. Sectoral reforms announced at both the central and state level are supposed to help revive the production in the Indian states. Also the fast-track clearances in the matters pertaining to investment from the private players will help develop infrastructure at a rapid pace. As far as the agriculture sector is concerned, an expectation of normal rainfall this year will help the farm output to great extent which was hit badly previously due to poor monsoon.

Economic Survey – Fiction

However, when it comes to reality we realize such story turns out to be fiction, when the actual operational year closes and the facts laid in the survey before the year seems to fictional. The story for the year sounds similar to the last year and could only be regarded as a result of positive thinking without action.

The economic survey very well outlines about the twin problems of the economy namely the fiscal deficit and current account deficit. A mention on the dependency on global finance leading to high CAD was found in the survey. Also other factors like Huge Import of Gold, etc. were some of the key reasons outlines in the survey paper. As a remedial measure the survey talked about the efforts to cap the subsidy on fuel, disinvestment of government stakes in PSUs etc. Also improved methodology like Aadhar Card, Biometric identification etc. were highlighted which will help in targeting of welfare measures and improve Direct Transfers.

Government Revenues – Taxes & Gold

When we talk about revenues for the government we see that the Taxes constituted as high as 11.9% of GDP in 2007-08, but since then the ratio of tax to GDP has fallen making it worrisome for the government. The survey suggests method of broadening tax base rather than increasing the tax rate to improve the revenue. Talking about gold import, the survey clearly indicated that under the inflationary environment of the economy, the average return provided by gold stood at 27% against 7.3% for the Nifty and 8.2% in term deposits since 2007. Thus the high return resulted in rising demand for gold.

As a matter of fact it won’t be wrong if we say that the solution to the problem lies in helping the GDP growth revive, with fixing up inflation. Curbing gold imports by imposing duties will only lead to smuggling and worsen the problem.

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Reforms to help revive the Economy

Reforms like shrinking subsidies, increasing access to finance, speeding up of clearance, infrastructure growth, quality regulation, reduction in corruption, reduction in barriers to the entry of new business will help the economy. Welcoming the Foreign Direct Investment with open hands will not only help the economy take a “U” turn. Focus must be shifted from services towards Agriculture and Industry as the sectors creates new jobs and help in keeping a check on unemployment ratio. The move to manufacturing will help India build a hardcore industry of its own unlike being dependent on the other economy as is the case in service sector. Labor laws need a push as well so as to make the industries organized.

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To sum we can say economic survey gives a positive and ROSY Picture for state of affairs, but reforms needs to be followed to make them fact and not fiction.