Economic Survey 2014-15: Some Highlights
A) Macroeconomic fundamentals have dramatically improved in 2014-15
- Inflation has declined by over 6 percentage points since late 2013
- Current Account Deficit down from a peak of 6.7% of GDP (in Q3, 2012-13) to an estimated 1% in 2014-15
- Foreign portfolio flows have stabilized the rupee
- After a nearly 12-quarter phase of deceleration, real GDP has been growing at 7.2% since 2013-14, based on the new growth estimates of the
B. Central Statistics Office
- Notwithstanding the new estimates, the balance of evidence suggests that India is a recovering, but not yet a surging economy
- Going forward inflation is likely to remain in the 5-5.5% range, creating space for easing of monetary conditions.
- Using the new estimate for 2014-15 as the base, GDP growth at constant market prices is expected to accelerate to between 8.1 and 8.5% in 2015-16.
- Private investment must be the engine of long-run growth.
- There is a case for reviving targeted public investment as an engine of growth in the short run to complement and crowd-in private investment
- India faces an export challenge, reflected in the fact that the share of manufacturing and services exports in GDP has stagnated in the last five years.
C. Fiscal Framework:
- India must adhere to the medium-term fiscal deficit target of 3 percent of GDP
- India must move toward the golden rule of eliminating revenue deficits
- Expenditure control with growth recovery and GST will ensure that medium-term targets are met
- The quality of expenditure needs to be shifted from consumption to investment.
- Subsidies and the JAM Solution:
- The direct fiscal cost of all the subsidies is roughly Rs. 378,000 crore or 4.2 percent of 2011-12 GDP.
- 41% of PDS kerosene is lost as leakage and only 46% of the remaining 59% is consumed by poor
- The JAM Number Trinity – Jan DhanYojana, Aadhaar, Mobile – can eliminate leakages and distortion
D. The Investment Challenge
- The stock of stalled projects stands at about 7% of GDP, accounted for mostly by the private sector.
- Manufacturing and infrastructure account for most of the stalled projects.
- This has weakened the balance sheets of the corporate sector and public sector banks,
- Despite this, the stock market valuations of companies with stalled projects are quite robust, which is a puzzle
- Expectation that the private sector will drive investment needs to be moderated
- Public investment may need to step in to ramp up capital formation.
E. The Banking Challenge
- Indian banking balance sheet is suffering from ‘double financial repression’
- Going forward, capital markets and bond-financing need to be given a boost.
- Private sector banks did not partake in the biggest private-sector-fuelled growth episode in Indian history during 2005-2012
F. The Rail Route to Higher Growth.
- Econometric evidence suggests that the railways public investment multiplier — the effect of a Rs 1 increase in public investment in the railways on overall output — is around 5.
- However, in the long run, the railways must be commercially viable and public support must be linked to railway reforms.
G. A National Market for Agricultural Commodities
- India has not one, not 29, but thousands of agricultural markets
- APMCs (Agricultural Produce and Marketing Cooperatives) levy multiple fees of substantial magnitude that are non-transparent
- The Model APMC Act, 2003 could benefit from drawing upon the ‘Karnataka Model’
- The key here is to remove the barriers that militate against the creation of choice for farmers and against the creation of marketing infrastructure by the private sector
Team Aspirant Forum