Economic Surveys have never been short on sound advice. But these have meaning only if there is the will to follow them.
The current mood among businessmen or consumers on the growth prospects for the Indian economy is largely one of uncertainty, tinged, at best, with the feeling that the worst may be over. This same uncertainty is reflected even in the Finance Ministry’s latest Economic Survey’s GDP growth projections for 2013-14, which range from 6.1 to 6.7 per cent. Compare this with last year’s Survey, which gave a more definitive forecast of 7.6 per cent, plus or minus 0.25 percentage points, for 2012-13. The fact that the latter has had to be successively scaled down to 5 per cent is probably the reason for a more open-ended prognosis this time. Even that assumes a continuing moderation of inflationary pressures (allowing the Reserve Bank to cut interest rates further), global economic growth looking up, and a normal monsoon – which are all themselves subject to varying degrees of uncertainty.
Given this overall hazy picture, it is good in some ways, though, that the Survey has chosen to be a little vague about growth projections and, instead, focus more on what needs to be done to bring back growth. Here, both its diagnoses and prescriptions are spot on. The high growth rates in the past decade were primarily investment-led and that was, in turn, enabled by a significant step-up in domestic savings. The genesis of the ongoing slowdown can, likewise, be traced to a drying up of investments, in which the Government has played a part in two ways. The first is by creating policy bottlenecks – whether in obtaining environmental clearances, fuel linkages or land acquisition – leading to many large projects getting stalled and vitiating the overall investment sentiment. The second is through runaway fiscal deficits, which lower the country’s savings and dry up much-needed finance for investments.
From this follows its suggestions for breaking the current deadlock, starting with arresting falling domestic savings by reducing the Centre’s fiscal deficit to 3 per cent of GDP by 2016-17 and also offering inflation-indexed bonds to make it less attractive for households to invest their surpluses in gold. Fiscal consolidation would require removing open-ended subsidies and transferring these directly to the bank accounts of targeted beneficiaries, besides implementing a nationwide goods and services tax regime that will impart greater revenue buoyancy. This should be accompanied by reducing policy impediments to bring down delays in obtaining permissions, making the land acquisition process more transparent, allowing firms to exit as easily as they can enter to enable claims of workers and financiers to be expeditiously resolved, providing quality infrastructure through creation of integrated manufacturing hubs such as the Delhi-Mumbai Industrial Corridor, and so on. But then, we have heard all this before even from past Surveys. Good prescriptions ultimately have meaning only if the will to follow them exists.