Address growth concerns

In view of the global turbulence of the last few months, it is not surprising that the Economic Survey (2015-16) has taken a sober view of India’s economic prospects next year. It predicts real growth to be no different from this year’s (7 to 7.75 per cent) in view of the global risks: the slump in world demand; no improvement in the debt servicing capacity of the corporate sector, thereby curtailing investment; a possible exchange rate risk arising out of instability in China, Saudi Arabia and Brazil; and fewer benefits from lower oil prices in the event of a further fall, as the decline will be lower in percentage terms. A push to growth could come from the Seventh Pay panel award and the possibility of a normal monsoon. There can be no mistaking the Survey’s more restrained tone compared to the mid-year analysis of the economy tabled in the winter session. The latter was candid enough to say the Indian economy was in a state of “recovery”, casting doubts over the official numbers. The Survey goes along with a real rate of growth of 7 per cent, but at the same time makes a case for loosening the purse strings. Since growth is being driven by private consumption and public investment, and not private investment and exports (a point made in the mid-year review), the Survey argues that it is important for the government to “purchase insurance” against global risks by spending more. The crux of the problem, it rightly identifies, is to lift nominal growth, now lower than interest rates for both the government and private players, so that debt service costs do not climb.

This is a subtle wish for higher wholesale price inflation in a strangely deflationary scenario. Fresh borrowing can bring down debt if the returns to capital (in other words, growth) improve. Therefore, the focus on capex as against squeezing revenue expenditure is expected to continue in 2016-17. This marks a more sensible approach to fiscal consolidation than what the UPA had displayed in its Budgets.

The Survey speaks in its own voice. It shows how India’s tax-to-GDP ratio is poor even in relation to emerging economies. The Survey also calls for a review of our strategies at the WTO in view of our growing significance in the world economy. It is clear that the Centre has a short-term role to play in lifting growth, and that the main task is to clear the way for private investment — by enforcing a bankruptcy code and recapitalising banks, possibly with RBI funds. All in all, it addresses the different roles the government and the private sector must play in a market economy in a clear-headed manner.

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