Opinion The prelude
Economic Survey gets the diagnosis and prescription largely right. The budget will be the real test.
The Economic Survey is a document that says all the right things a day before the big event. This year’s survey is no different. The political mandate for reform enjoyed by the Narendra Modi government, low global oil prices, and challenges in other major economies that have made India “the near-cynosure of eager investors” have, according to it, created an unprecedented opportunity to launch the country on a double-digit medium-term growth trajectory. This moment should hence be leveraged to do just what is required — among other things, rationalising subsidies by moving to targeted direct benefit transfers using Jan Dhan-Aadhaar-Mobile (JAM, as the survey calls it), redirecting government expenditures from public consumption to investment, and pushing for a nationwide goods and services tax with a single internationally competitive rate sans exemptions. Equally sensible is the suggestion that “Make in India” should be about improving the general business environment through less onerous taxes and labour laws, or building infrastructure and enabling connectivity. It mustn’t involve micro-intervention and sector-specific tax/ tariff incentives, which is standard fare in every budget.
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One cannot disagree, either, with the survey’s assessment about not worrying excessively over deficit reduction targets in the near term, so long as the extra borrowings are only for financing investments. Weak corporate balance sheets, the failure of public-private partnerships in infrastructure and an impaired banking system have held back private investments. Given no signs of revival on this count, there is no alternative to greater public investment in the current scenario. That being the case, a review of the existing “glide path” for fiscal deficit reduction — with a view to boosting public investment to revive growth and crowd-in private investment — may well be in order. Such a strategy is, moreover, unlikely to cause any macroeconomic instability: India’s consumer price inflation is projected to be within 5-5.5 per cent alongside a current account deficit at 1 per cent of the GDP this year, as against their corresponding levels of 10.2 and 4.7 per cent in 2012.
But it is one thing to make the right economic diagnosis and prescription in a routine annual flagship document of the finance ministry. How far Finance Minister Arun Jaitley will go in presenting a credible fiscal consolidation strategy emphasising investment over consumption, replacing subsidies with direct benefit transfers, while not succumbing to the temptation of doling out sector-specific sops and, above all, keeping alive the faith in the India Growth Story — will be revealed by the Union budget.
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