Economic survey forecasts 8 per cent-plus growth in 2015-16

NEW DELHI: Economic growth in India is set to touch 8.5 per cent during 2015-16 indicating scope for ushering in big bang reforms soon.

This was stated in the Economic Survey 2015 report tabled in Parliament on Friday by Finance Minister Arun Jaitley ahead of presentation of the Union Budget on Saturday.  It said a return to the heady days of double-digit growth was expected.

“India has reached a sweet spot and there is scope for Big Bang reforms” said the report prepared by Finance Ministry’s Chief Economic Adviser Arvind Subramanian on the state the Indian economy, the third largest in Asia after China and Japan.

The 8.1-8.5 per cent growth forecast under a new methodology is based on expectations that the monsoon would be favourable and farm output would be higher. The survey suggests that in the short run, growth would receive a cumulative impact of reforms, lower reforms and likely monetary policy easing.

Growth in 2014-15 driven by infrastructure sector

The survey noted that the recovery in the current fiscal (2014-15) when the GDP growth rate is seen at 7.4 per cent (new methodology) was driven by infrastructure sectors, especially electricity, coal and cement. It said that the industrial sector was recovering rather slowly at 2.1 per cent during April-December of this fiscal, just over 0.1 per cent in the corresponding period last year.

During this period, manufacturing remained tepid recording just 1.2 per cent. The report attributed the subdued growth in manufacturing to high rate of interest, infrastructure bottlenecks and low domestic and external demand.

According to the survey, the overall growth in eight core industries improved marginally to 4.4 per cent compared to 4.1 per cent in the same period last year. Electricity, coal and cement stood out as the driving forces but areas like natural gas, fertilizers, crude oil, refinery products and steel slowed down the pace of growth.

The survey lauded the Government’s efforts to resolve long-pending issues like gas pricing, fixing norms for auctioning coal blocks and improving power distribution network.

Survey slams Railways

The survey was downbeat about the performance of railways which it said had been on the ‘route to nowhere’ characterized by underinvestment resulting in lack of capacity addition and network congestion.

The very modest hikes in passenger tariffs and cross-subsidization from freight operations had resulted in freight rates becoming highest in the world. The railways had thereby ceded space to road transport which was costlier and energy inefficient.

Coal was transported in India at more than twice the cost in China and took 1.3 times longer to do so. In the long run, railways must be commercially viable, the report said.

Move towards golden rule of ending revenue deficit  

The survey outlined a medium-term strategy, based principally on ending revenue deficit, to create buffers for future economic downturns. It invoked the golden rule that Governments were expected to borrow only to finance investment and not to fund expenditures. This would assist the Government to take the economy back to a durably higher growth.

It noted reiterated the Government’s commitment to fiscal consolidation and to stick to the 4.1 per cent fiscal deficit target set last year. This entailed that the Government should cut its expenditure, if revenue did not pick up sufficiently. The moderate indirect tax collection and a large subsidy bill made the task of reaching the target “daunting”in spite of elbow room from the decline in oil subsidies.

The survey estimated the foodgrain production for 2014-15 at 257 million tonnes, exceeding that of last five years by 8.5 million tonnes.

Subsidies do not appear to have improved lot of poor

Perhaps in an indication of what is in store in Saturday’s budget, the survey noted that price subsidies did not appear to have had a transformative effect on the living standards of the poor.  The subsidies which cost Rs. 3.78 lakh crores, about 4.24 per cent of the GDP, revealed that they may not be the best weapon for fighting poverty.

“The debate is not about whether but how best to provide support to the poor and vulnerable. The Government subsidies a wide variety of gods and services with the aim of making them affordable to the poor including rice, wheat, pulses, sugar, railways, kerosene, LPG, naphtha, iron ore, fertilizer, electricity and water. Are these subsidies effectively targeted at the poor?”

“Unfortunately, subsidies can sometimes be regressive and suffer from leakages. For example, electricity subsidies by definition only help electrified households. Even in the case of kerosene, 41 per cent of PDS kerosene is lost as leakage and only 46 per cent of the remaining 59 per cent is consumed by households that are poor”, the survey said.

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