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The Economic Survey 2013-14, tabled in the Lok Sabha by Finance Minister Arun Jaitley on the eve of the Modi government’s first budget, projects a rebound in the economy, with a growth rate between 5.4 and 5.9 per cent estimated for the current fiscal. The document makes it clear that higher growth is predicated on reforms on three fronts: creating a framework for sustained low and stable inflation, improving public finances and beefing up the legal and regulatory framework. In a realistic assessment of the economic stresses and fiscal challenges facing the country, the document is firmly of the view that fiscal consolidation, alongside the creation of a competitive national market for food products, is an important step for tackling inflation. Reforms in these sectors are expected to reduce inflation uncertainty, which could increase domestic household financial saving and make resources available for investment.
To consolidate public finances, the survey prescribes a sharp fiscal correction, which could be possible through a new Fiscal Responsibility and Budget Management Act that incorporates stronger penal measures. There is also an emphasis on the tax regime being made simple, predictable and stable, especially in the context of the run-ins the tax department has had with a string of multinational and domestic firms in the last three years. On the tax side, two measures flagged are a single-rate GST and the implementation of the direct taxes code. Both could find a mention in Thursday’s Union budget. While the survey also mentions the risks to the economy from a poor monsoon, it pins its hopes on a moderate recovery in the global economy, particularly on account of the performance in some advanced countries. A return to the 7-8 per cent growth rate has been projected by 2016-17 — the concluding year of the current 12th Five Year Plan.
There is already some evidence of an industrial growth pickup, including improving car sales and investment plans announced by capital goods firms, and the projections made in the survey do not seem way off. The other significant takeaway from the document is that the finance ministry and the RBI seem to be on the same page when it comes to inflation, especially on inflation targeting as key to promoting economic growth.