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Wednesday, October 27, 2021

Back to earth

This year’s Economic Survey offers a less bullish prognosis, for good reason.

Updated: February 27, 2016 12:57:15 am
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The most striking feature of this year’s Economic Survey is the tone — not as sanguine as the picture that was presented in the report for 2014-15. Last year’s flagship annual document of the finance ministry had talked of India reaching a “sweet spot”, with the economy on the recovery path and set to “finally be launched on a double-digit medium-term growth trajectory”. The basis for the optimism was “a political mandate for reform and a benign external environment”. The 2015-16 survey, by contrast, emphasises the need for “a recalibration of expectations” and making “conditional” assessments of the economy’s performance over the coming year. The main reason for this is “an unusually challenging and weak external environment”. But external factors apart, there is also an admission of internal political failure to push reforms: “Approval for the game-changing GST bills has proved elusive so far; the disinvestment programme fell short of targets, including that of achieving strategic sales; and the next stage of subsidy rationalisation is a work-in-progress”.

The change in tone alone captures the sheer gap between expectations at this time last year and the ground reality that has unfolded since then. And for most — be it investors or the general public — this gap is more about the Narendra Modi government not really delivering on the expectations that had brought it to power in May 2014. True, nobody predicted the turbulence that a Chinese-led slowdown has now unleashed on the world economy. The survey notes that a reduction in global growth to 3 per cent, from the 4-4.5 per cent level of 2003-11, brings down India’s own growth to 7-7.5 per cent, as against its long-run potential of 8-10 per cent. But the fact is that this wasn’t helped by a lack of political will to undertake aggressive disinvestment and subsidy reforms. These would have released resources for much-needed public capital expenditures to counter weak external demand and crowd-in private investments. By allowing fringe

Hindu-right elements to dictate the political discourse and divisive issues to take centre-stage in Parliament, the ruling BJP-led alliance unnecessarily shifted the focus from the economy.

It is not late still, however, to redeem the situation. All eyes will be on the Union budget to be presented on Monday: A clear strategy on disinvestment extending to sale of majority government equity and commitment to credible fiscal consolidation is what investors will primarily look for. But beyond the budget, the government’s efforts to get at least two important legislation — those relating to the GST and a comprehensive bankruptcy code (enabling businesses to shut as easily as to start) — through Parliament would also matter. And that requires creating the right political environment, for which the responsibility lies more with the party in power.

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