No Back­ing For Any Big Fis­cal Push

The Economic Times - - Companies: Pursuit Of Profit -

This year’s Eco­nomic Sur­vey was awaited by many, in­clud­ing me, to un­der­stand the gov­ern­ment’s thought on many is­sues, es­pe­cially growth per­spec­tives post de­mon­eti­sa­tion, an as­sess­ment of how fast the econ­omy can re­vive to near-trend path sit­u­a­tion, how the Bud­get can be used to ease the pains of de­mon­eti­sa­tion and fi­nally the long-term thought process of the gov­ern­ment with re­spect to re­forms and de­vel­op­ment. The Sur­vey has not only high­lighted the hap­pen­ings of the pre­vi­ous year but also laid out a prospec­tive thought-pro­vok­ing big pic­ture for the econ­omy.

On growth, the Sur­vey sug­gests that costs of de­mon­eti­sa­tion were from the con­trac­tion in the cash money sup­ply. To this ex­tent, the slow­down would be tem­po­rary as the re­mon­eti­sa­tion is ex­pected to fully al­le­vi­ate the cash squeeze by April 2017. The pos­i­tive im­pli­ca­tions of the de­mon­eti­sa­tion ef­fects would be to in­crease digi­ti­sa­tion, greater tax com­pli­ance and hence an in­crease in long-run tax rev­enue col­lec­tions. Im­por­tantly, the Sur­vey in­di­cates that the tran­si­tion to­wards digi­ti­sa­tion should be grad­ual and based on in­cen­tives rather than con­trols. The Sur­vey points to a rather larger range of growth of 6.75-7.5% for FY18, in­di­cat­ing that there could be down­side risks to growth em­a­nat­ing from global con­di­tions of low growth and a re­ver­sal in the global oil prices. The Sur­vey be­lieves that over the medi­umterm, other en­abling struc­tural re­forms, in­clud­ing fol­low-ups on de­mon­eti­sa­tion and the im­ple­men­ta­tion of GST, would boost growth to 8-10%.

With the Sur­vey com­ing just a day be­fore the Bud­get, mar­ket par­tic­i­pants tra­di­tion­ally look for­ward to this doc­u­ment to throw light on the ex­pected fis­cal stance of the gov­ern­ment. Pre­cious lit­tle is gen­er­ally ob­tained on this front. Even as the mar­ket had been vo­cif­er­ous on hopes that the Bud­get will pro­vide for a con­sump­tion push and hence miss the con­sol­i­da­tion tar­get of 3% of fis­cal deficit to GDP, the Sur­vey does not seem to be too much in favour of any such sig­nif­i­cant fis­cal push. True, the globe is now shift­ing its fo­cus to­wards fis­cal poli­cies to pro­vide the growth im­pe­tus. How­ever, ac­cord­ing to the Sur­vey, In­dia might not need to walk down this path as in­fla­tion in In­dia con­tin­ues to be higher than the global stan­dards and hence counter-cycli­cal poli­cies will have to be more sen­si­tive to­wards trig­ger­ing higher in­fla­tion with any poli­cies aimed to boost de­mand. The debt-GDP ra­tio is higher than most other emerg­ing economies and hence it would not be proper to em­ploy any sig­nif­i­cant fis­cal push.

In the con­text of the above and in the ab­sence of the FRBM re­port be­ing made pub­lic, we think the gov­ern­ment would con­tinue to try and com­ply as much as pos­si­ble with fis­cal con­sol­i­da­tion. We think the Bud­get would point to­wards a 3.3% tar­get of FD/GDP for FY18 and would wait for the ben­e­fits aris­ing out of GST im­ple­men­ta­tion or gains from higher IT col­lec­tions through IDS-II to show bet­ter re­sults.

Fi­nally, the Sur­vey ad­vo­cated the con­cept of Uni­ver­sal Ba­sic In­come (UBI) as a rad­i­cal new vi­sion to­wards a strat­egy of re­dis­tri­bu­tion. The ar­gu­ment is that the ex­ist­ing sub­si­dies and wel­fare spend­ing suf­fers from mis­al­lo­ca­tion and thus should make way for cash trans­fers. The Sur­vey ar­gues that the poor­est 40% re­ceives only 29% of the to­tal fund­ing. How­ever, the cost-ben­e­fit anal­y­sis of the same leads the Sur­vey to con­clude that the UBI as an idea may be costly in the im­me­di­ate run and may not be ripe for im­ple­men­ta­tion just yet but “is ripe for se­ri­ous dis­cus­sion”.

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