HOPING FOR BOOM AMIDST GLOOM
Abhijit Mukhopadhyay is an economist. He can be contacted at abhijitmukhopadhyay[at]gmail.com.
Economic Survey 2015-16 starts with recognising the uncertain global environment and current difficulties in reviving economic growth. But, it also focusses on the so-called advantages India is having and how those can transform the economy into a trajectory of 8 to 10 per cent of GDP growth. The survey forecasts a growth of 7.00 to 7.75 per cent in the coming fiscal.
Fiscal deficit target of 3.9 per cent should be achieved, without much difficulty, and this has been pointed out in the survey and projected as a positive indicator towards fiscal prudence and consolidation. However, many commentators feel that the achievement of this deficit target is done by cutting down on social spending, which may not bode well with the longer term growth ambitions of the country.
Similarly, the falling current account deficit is also touted as a positive development. However, the depressed world demand left Indian exports falling and there is no denying of the fact that while this brings cheer to balance of payments – it may not be that wonderful if India keeps on relying on export as a major factor behind its growth revival.
The lower inflation is also highlighted in places to show the economy in good lights, but as the trend of growing food prices and dwindling manufacturing prices emerge this low inflation may not turn out to be a very good signal.
Many economists in the recent past talked about India being in a “sweet spot.” What actually it means is that they perceive India to be in an advantageous position in terms of cheap labour, demographic shift in population, relatively moderate growth rate, cost advantage, lower price environment, and so on. Chinese deceleration has provided more apparent credence to this theory. The survey also highlighted these at various places. But, these so-called “advantages” can turn into disadvantages in no time if not utilised properly. For example, demographic advantage can turn into a demographic curse if the young population is not provided with basic amenities and rights like education, health and employment. But, it is now fashionable not to speak negatively about “business environment,” and broadly Economic Survey conforms to that trend.
The balance sheets of public sector banks, in the recent past, created headlines and rightly so. Amount of NPAs and restructured loans has created unprecedented pressure on the banking system, and it seems that recapitalisation of the banks is the only solution to this problem. And if this is not resolved immediately it has the potential to derail economy. The survey also points this out. However, invoking “chakravyuha” from mythology it also advocates for more relaxed norms for exit for business. While it matches well with the startup focus of the government, it also has the potential to further jeopardise the balance sheets of the banks. Therefore, a careful framing of bankruptcy law is the need of the hour.
Though the Survey notes that tax revenue may exceed the projected level, it also recognises the stagnant tendency in tax-GDP ratio. If the revenue does not increase proportionately in the coming years and government spendings are cut to achieve deficit targets prescribed under FRBM, then it may not easy to revive the growth momentum.