At 7-7.5% GDP growth, Survey bets big on FY19

The Chief Economic Adviser, Arvind Subramanian, the architect of Economic Survey 2017-18, has painted a more optimistic picture of the economy by scaling up the GDP growth projection for this fiscal to 6.75 per cent and the growth forecast for the next year to 7-7.5 per cent.

The Survey was tabled in Parliament by Finance Minister Arun Jaitley on Monday.

The forecasts were weighed down by rising global crude oil prices and the expected financial requirements of the general elections in 2019.

Coming just two days ahead of the government’s last full Budget (2018-19) for the current term, to be presented on February 1, the Survey has advocated a modest consolidation in the fiscal deficit and has suggested that the government focus on finishing its ongoing reforms in agriculture and GST .

“The outlook for 2018-19 will be determined by economic policy in the run-up to the next national election,” said the Survey. Growth could be even higher at close to the medium-term potential of 8 per cent if macroeconomic stability is maintained, ongoing reforms are stabilised, and the world economy remains buoyant, it added.

The upside risks to its projection come from higher export growth and a revival in private investments led by the resolution of bad loans by the Insolvency and Bankruptcy Code.

Subramanian’s growth projection are in line with analysts’ estimates. “Our GDP estimate for 2018-19 is 7.5 per cent,” said CARE Ratings. Downside risks include the persistently higher global crude oil prices, sharp corrections to elevated stock prices.

In Subramanian’s first survey, he spoke about ‘JAM Trinity’, and in last year’s Survey — which was released in two instalments — he addressed the concept of universal basic income. In the latest Survey, he has come out with a fresh nomenclature: ‘from crony socialism to stigmatised capitalism’.

Subramanian has called for “heightened vigilance” of the stock market boom and said that a correction can lead to classic emerging market “sudden stall” and trigger capital outflows too.

Fiscal deficit management

In the context of the general elections due next year, the Survey raised the question of what kind of a fiscal consolidation roadmap the government would like to follow in its Budget.

It has advocated “a modest consolidation that credibly signals a return to the path of gradual but steady fiscal deficit reductions” that would take care of the need to maintain the fiscal consolidation roadmap and also take care of any populist give-aways the government may choose to give.

“Setting overly ambitious targets for consolidation — especially in a pre-election year — based on optimistic forecasts that carry a high risk of not being realised will not garner credibility either,” it warned.

The Centre has set a fiscal deficit target of 3.2 per cent for 2017-18, and plans to lower it to 3 per cent in 2018-19. The Survey is also cautious in its outlook on the fiscal deficit and said that “a pause in general government fiscal consolidation cannot be ruled out,” especially with ₹80,000 crore allocated to bank recapitalisation.

Policy prescription

Subramanian also advocated against any radical reforms, but said the government, must “finish what they have already started.”

In 2018-19, the government should look at supporting agriculture, stabilising GST, completing reforms to address the twin balance sheet (TBS) problem, finish the privatisation of Air India and head off macroeconomic pressures that may arise from higher oil prices.

Election year, high oil prices could spoil party

Average oil prices could rise by 10-15 per cent next fiscal, and a $10 per barrel increase in oil prices impacts the GDP by 0.2-0.3 per cent, inflation by 0.2-0.3 per cent and also widens the current account deficit.

In the medium term, policies must be focussed on three key areas: employment, education and agriculture. “We expect that the Budget will address some of these issues,” said industry chamber CII.

“Above all, India must continue improving the climate for rapid economic growth on the strength of the only two truly sustainable engines — private investment and exports,” said the Survey.

Subramanian listed the rollout of GST, resolution of the TBS problem, implementing a major recapitalisation package to strengthen public sector banks, further liberalisation of FDI and export uplift from the global recovery as major achievements in 2017-18, and said these have also been validated by the first upgrade in sovereign ratings in 14 years.

‘Utter mismanagement’

The Opposition Congress said that the Survey has affirmed the “utter mismanagement” of the economy by the Centre. Congress’ chief spokesperson Randeep Singh Surjewala said no amount of new announcements in the Presidential Address and the Budget can undo the damage the BJP Government has done to a robust economy like India.

For 2017-18, the Survey has pegged the average retail inflation at 3.7 per cent, with a spike in the fourth quarter, when CPI inflation may rise to 5 per cent.

The current account deficit is expected to average about 1.5-2 per cent of GDP this fiscal. Gross value added is expected to grow by 6.1 per cent in 2017-18 compared with 6.6 per cent in 2016-17.

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