Light Ahead, But at the End of a Tun­nel

The Eco­nomic Sur­vey is san­guine and cau­tious

The Economic Times - - Breaking Ideas -

Vol­ume II of the Eco­nomic Sur­vey holds out bright light at the end of a pretty dark tun­nel: medium-term prospects are bright, but short-term ones are dim. Growth would be lower than 7.5% in the cur­rent fis­cal, in­fla­tion would stay be­low 4%, state gov­ern­ments would find it dif­fi­cult to spend on cap­i­tal for­ma­tion af­ter us­ing up their fis­cal space to take on the debt of bank­rupt power util­i­ties and dis­tressed farm­ers. The Cen­tre is do­ing its best to prop up the flag­ging in­vest­ment ra­tio, but is con­strained to meet its fis­cal deficit tar­get in a year of low nom­i­nal GDP growth and promised spend­ing on higher civil ser­vice pay. To help things along, the RBI must slash its pol­icy rates ag­gres­sively and the on­go­ing process of tack­ling the twin bal­ance-sheet (TBS) prob­lem must con­tinue apace. And the gov­ern­ment must boost farm in­comes by re­mov­ing con­straints on farm prices such as ex­port bans, stock­ing lim­its and mar­ket­ing re­stric­tions.

The Sur­vey’s di­ag­no­sis of the econ­omy’s ills and its pre­scrip­tions are un­likely to blind ob­servers of the econ­omy with any daz­zling orig­i­nal­ity. That does not mean they are not sound, although some qual­i­fi­ca­tions ap­ply. Is the goods and ser­vices tax (GST) guar­an­teed to keep prices in check? Im­proved tax com­pli­ance, on which higher tax col­lec­tions are pred­i­cated, will mean that many ha­bit­ual evaders would start pay­ing tax. As the share of in­di­rect tax in GDP goes up, prices would bump up in the year of GST im­ple­men­ta­tion. The Sur­vey is right when it says that re­mu­ner­a­tive prices for farm­ers and low in­fla­tion are con­ver­gent goals — but only even­tu­ally; in the short run, re­duc­ing dis­tress on the farm would mean higher food prices. The Sur­vey at­tributes most of the stress in the power sec­tor to large ad­di­tions to ca­pac­ity and the wel­come drop in re­new­able power prices. The hard re­al­ity is that con­tin­ued power theft and paucity of the po­lit­i­cal will needed to make peo­ple pay for the power they con­sume are at the core of the cri­sis in power.

Vol­ume II car­ries for­ward the tra­di­tion of the Sur­vey serv­ing as an ag­gre­ga­tor of rel­e­vant re­search and guide to ap­plied eco­nomics for stu­dents of all ages.

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.