Slowdown cyclical, key to revival of growth is higher spending: Economic Survey

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While Finance Minister Nirmala Sitharaman estimated the fiscal deficit for 2019-20 at 3.3 per cent of the GDP, the Survey gave enough indications this would be breached. “Fiscal deficit target may have to be relaxed for the current year,” it said, pointing to the imperative of boosting domestic demand, which is crucial to revive growth.

For employment generation, the Survey called for policies that promote ease of doing business and flexible labour regulations, and foster entrepreneurial activity, especially in the manufacturing sector. It further said that ‘Assemble in India’ for the world should be integrated with ‘Make in India’ to raise India’s export market share to about 3.5 per cent by 2025 and 6 per cent by 2030. In the process, India would be able to create about 4 crore jobs by 2025 and about 8 crore jobs by 2030.

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The Survey called for cutting non-committed revenue expenditures like subsidies, but warned against cutting capital expenditure. “…since a considerable proportion of revenue expenditure like interest payments, wages and salaries and pensions is committed. in nature, this leaves a little fiscal headroom for manoeuvre. Therefore, the focus of the government should lie on rationalization of non-committed revenue expenditure like subsidies,” it said. It also advocated aggressive disinvestment to “facilitate creation of fiscal space and improve the efficient allocation of public resources”.

Citing ancient texts of Thirukural and Arthashastra, the Survey authored by Chief Economic Advisor Krishnamurthy Subramanian, underlined the importance of wealth creation. Stressing that many of the interventions over the years in sectors such as pharmaceuticals and agriculture have been counterproductive, the Survey called for strengthening the ‘invisible hand of markets’ along with the ‘hand of trust’ to support markets. “India’s aspiration to become a $5 trillion economy depends critically on strengthening the invisible hand of markets together with the hand of trust that can support markets,” it said.

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According to Subramanian, looking at the business cycle phenomena in India, typically the peaks and troughs, and co-relating them with what has happened, “it seems like we have hit the trough therefore there should be uptick in growth. That is what we are Budgeting.”

Listing ten positive factors such as picking up of Nifty India Consumption Index for the first time this year, an upbeat secondary market, higher FDI flows, build-up of demand pressure, positive outlook for rural consumption, rebound of industrial activity, steady improvement in manufacturing, growth in merchandise exports, higher build-up of foreign exchange reserves and positive growth rate of GST revenue collection, the Survey said the uptick in second half of 2019-20 will be mainly due to these factors.

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Since the indirect tax collections have been muted in the first eight months of this fiscal, the revenue buoyancy of goods and services tax (GST) would be key to the resource position of both the Central and state governments, it said. The Survey also said that the recommendations of the Fifteenth Finance Commission on tax devolution would have implications for Central government finances.

Pointing to dwarfism in the banking sector, the Survey called for improving governance in public sector banks and the need for more disclosure of information to build trust. To further make it easier to do business, it suggested removing the red tape at ports to promote exports as well as measures to make it easier to start a business, register property, pay taxes and enforcing contracts.

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