ECONOMIC...

According to Subramanian, various measures announced in the ₹20 lakh crore stimulus package, such as ₹111 lakh crore national Infrastructure pipeline, will have cascading effect on the economy and create demand.

Even as it hinted at deviation from the fiscal consolidation path in the near future, the Survey made a case for fiscal and monetary expansion. It cited both in-house and independent research on how India’s debt burden was entirely sustainable, why rating agencies were wrong in giving India a lower credit rating and how a rise in government investment in India would not necessarily crowd out private investment. By harping on the need to follow core inflation rather than food inflation – the latter has been the driving force behind the inflationary spike in the recent months – the survey might also be trying to carve out greater space for monetary policy intervention.

“While it (Survey) argues emphatically for counter-cyclical fiscal policies, comfort on debt sustainability, and unfair treatment by rating agencies, we believe the government is unlikely to drop the ball on fiscal rectitude. We expect the government to announce a fiscal deficit of 6.8% of GDP for FY21, 5.3% of GDP for FY22, and outline a fiscal roadmap that leads to gradual consolidation and stabilisation of public debt levels,” Sonal Varma and Aurodeep Nandi, economists at Nomura Global Market Research, said in a note.

But inherent in the Survey’s numbers are details of a lower devolution to states. While Budget Estimates for 2020-21 had projected an increase in devolution of states’ share in taxes from 6.56% of GDP in 2019-20 (Revised Estimates) to 7.84%, a contraction in GDP and a sharp rise in share of taxes raised through special cess and duty in the current fiscal year could mean a fall in absolute devolition to states, and a lower realisation from disinvestment. The second, a shortfall of around ₹1.9 lakh crore is understandable in a pandemic year, but the former is a matter of concern because the primary response to Covid-19 as well as alleviating distress has to come from the states. In keeping with what is now an established tradition of the survey engaging in intellectual debates on sometimes radical economic ideas, the Survey also touched upon some crucial policy reforms in the regulatory sphere. It argued that “the problem of over-regulation and opacity in Indian administrative processes flows from the emphasis on having complete regulations that account for every possible outcome” and the “optimal solution is to have simple regulations combined with transparent decision making process”. It also underlined the need for a rollback of regulatory forbearance to cushion the impact of the pandemic, by describing it as an emergency measure.

Read together with the need to initiate a second asset quality review in banks, this suggests growing policy concern over the bad debt crisis in banks, something which was highlighted in RBI’S latest Financial Stability Report.

“The Economic Survey has argued extensively on growth and debt sustainability and how India’s sovereign rating is not appropriate. Since India’s debt is going to be 73.8%, the arguments of the Survey are well appointed. But it cannot be missed that unsustainable debt can put our sovereign rating under pressure and also accessing foreign capital, which is important for infra development, etc, difficult,” said Sanjay Kumar, partner, Deloitte India. “It does point out that there may be enhanced government expenditure in the coming Budget. That is good” he added.