Here’s Clarity, Find Political Courage
That is the message the Economic Survey offers
Gone are the days when the Economic Survey used to be a dull listing of facts and figures, except for the first chapter on the way forward. Surveys have evolved into a lengthy but lively debate on challenges, current economic wisdom, the global discourse and desirable policy alternatives. The 2016-17 Survey takes this trend to a new level and deserves study long after the Budget rush.
The Survey finds that economic growth this year has been impacted by demonetisation, up to 1% in nominal terms and up to 0.5% in real terms. That estimate of depressed nominal growth puts a number to the income lost to demonetisation: 1% of the 2015-16 GDP, or 1,35,761 crore. The Survey is candid in admitting that official GDP numbers could underestimate the impact on the informal sector, worst affected by cash shortages. Yet, it hopes that increased transparency, reduced corruption and growing digitalisation would make the exercise boost future growth. But to realise that potential, it identifies conditions that are hard to meet: relaxed tax enforcement (raids and extensive scrutiny are underway), lower taxes and stamp duties, and real estate under GST, besides swift remonetisation. Growth is circumscribed by adverse global developments — a rising dollar, rising interest rates, rising crude prices, intolerance of exports and a wobbly China — and India’s twin balance-sheet problem. Banks are laden with dud loans and companies have loans they cannot service. The Survey’s call for debt forgiveness is a political hard-sell. Rather than yet more asset reconstruction companies, what is needed is to expedite rules for the Bankruptcy Code and let the market for corporate control and corporate assets work.
But state capacity to regulate markets is a weakness the Survey identifies as a major problem. On the fiscal deficit, the Survey opts for discipline, rather than using public investment to boost growth, although growth is constrained by anaemic private investment. Clearly, investment trumps universal basic handouts when the investment rate is lower than at any time since 2004-05.