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Economic Survey 2014-15: Investment, state transfers need priority over consolidation

Survey projects growth rate above 8.1% in 2015-16, moderate inflation

By: ENS Economic Bureau | New Delhi |
Updated: February 28, 2015 2:54:15 am
Chief Economic Adviser Arvind Subramanian at a press conference on the Economic Survey 2014-15 in New Delhi on Friday. (Source: Express photo by Prem Nath Pandey) Chief Economic Adviser Arvind Subramanian at a press conference on the Economic Survey 2014-15 in New Delhi on Friday. (Source: Express photo by Prem Nath Pandey)

Committing itself to meeting the fiscal deficit goalposts in the medium term, the Economic Survey 2014 has suggested decelerating the pace of fiscal consolidation in 2015-16 due to a higher devolution of tax revenues to states as well as upping public investments.

“Accelerated fiscal consolidation will be limited in the upcoming fiscal year by a number of factors, such as implementing the recommendations of the Fourteenth Finance Commission, clearing the compensation obligations to the states for the reduction in the Central sales tax in 2007-08 and 2008-09, and the need to modestly ramp-up investment,” said the Survey tabled in Lok Sabha on Friday.

The medium-term goalposts had laid out fiscal deficit target of 3.6 per cent in 2015-16 and 3 per cent in 2016-17.


The Survey has, however, stressed that the Centre would meet its fiscal deficit target of 4.1 per cent of the GDP in this fiscal and 3 per cent in the medium term to restore its credibility. This could be an ambitious task given that the Centre’s fiscal deficit exceeded the Budget estimate to touch Rs 5.32 lakh crore in the first nine months of the fiscal, and is higher than the last five years average of 77.7 per cent.


While underlining the need to create further fiscal space to boost investment and growth, the Survey stressed that fiscal consolidation can be achieved in the short- and medium-term on the back of better growth prospects, pruning expenditure, weeding out subsidies and the lower crude oil prices.

economy“It is possible to combine the need for extra investment with the need for fiscal discipline. The amount we need to spend is possible within the provided fiscal envelope,” said the finance ministry’s chief economic adviser Arvind Subramanian, adding that steps such as the recent excise duty levy on petrol and diesel would also help increase the tax to GDP ratio, thereby helping the fiscal consolidation.

Prescribing a formula for higher pubic investment, the Survey said has suggested a switch from public consumption (through the rationalisation of subsidies) to public investment as well as asset sales to finance investment.

Meanwhile, predicting that India has now reached a “sweet spot” in history, with a government that has the political mandate and a benign external environment, Subramanian, who is the chief author of the Survey has also projected a growth rate of 8.1 to 8.5 per cent in 2015-16, as compared to 7.4 per cent in the current fiscal, and by 8-10 per cent in years after that.

The Survey is also optimistic about inflationary pressures, betting on moderate inflation and monetary easing in the coming fiscal. It pegged retail inflation to average between 5 per cent and 5.5 per cent.

It also pegged the current account defiict to ease to 1.3 per cent of the GDP and less than1 per cent in the next fiscal on the back of easing of global commodity prices including petroleum products.

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