Economic Survey in retrospect
The Survey would be presented early this year, but taking it too seriously has its own risks
The Union Budget for 2017-18 will be presented not on February 28, but February 1. The expectation is that the Economic Survey for 2016-17 will be released on January 31.
Advancing the date by a month has data implications. The “advance estimate” of gross domestic product (GDP) for the current year is a critical input for both the Budget and the Survey. This estimate for 2016-17 presumably will be shared with the Ministry of Finance by January 7, 2017. It will have even less hard data behind it than the earlier years’ estimates made available a month later. Analysis of the economy may have to be revised in May, when the provisional estimate of GDP for 2016-17 becomes available and differs with the advance estimate.
As reported in this paper on October 18, 2016, most probably because of this data issue, it will be a new twophase model for the Survey — one on the eve of the Budget and another around July. Effectively, for 2016-17, the Survey on the eve of the Budget will be the mid-year review and that around July, the full annual review.
The government has been presenting a mid-year review of the economy since 2002. Presented in December every year, it contained an analysis of the developments in the economy in the first half of the same financial year and reflections on prospects and policy issues. The Fiscal Responsibility and Budget Management (FRBM) Act, 2003 requires a review of the trends in receipts and expenditure in relation to the Budget, every quarter. From 2004, the mid-year review has also served as the second quarterly review. The old mid-year review and the new Survey around July will have an important difference. The former related to the review of the first half of the current year, the July Survey will be for the preceding financial year. Now, what happens if the July Survey has a very different description and interpretation of developments in the preceding year from that in the Survey on the eve of the Budget? Will there be a mid-course budgetary correction? We do not know the answer.
The important point, however, is that the Survey, only eight years younger than the Republic, has evolved over the years and is still evolving. Its launch was announced in the Union Budget speech for 1958-59 by prime minister Jawaharlal Nehru himself. Nehru had assumed charge of finance after T T Krishnamachari, following the Mundhra scandal, resigned as finance minister on February 18, 1958.
The origin of the Survey lies in the first year of the Republic,whenaWhitePaperwascirculatedalongwiththe Budgetstatementsfor1950-51.ThenfinanceministerJohn Mathai,inhisBudgetspeech,hadsuccinctlyexplainedthe rationale for such a White Paper. He said “…the House will findthatthematerialsetoutintheWhitePaperwouldgive Honourable Members all the data which they would require for the consideration and discussion of the Budget later in the session.” The 30-page-long White Paper elaborated “This Paper gives a brief account of the economic developments against the background of which the budgetfor1950-51hasbeenpreparedandexplainsthesalientfeatures of the Revised Estimates for 1949-50 and the Budget Estimates for 1950-51”
The Estimates Committee (1958) in their 20th Report on Budget Reforms recommended presentation of a report on the national economy prepared by government experts, to precede the Budget presentation. The White Paper got transformed into the Economic Survey in 1958. What the Survey acquired over time is a rich set of data tables to go with the report, some of it in the form of a data appendix.
For decades before the internet revolution, the Economic Survey and the Reserve Bank of India’s Report on Currency and Finance were the first two ports of call for all economists and observers analysing the Indian economy. They were valued as much for the data tables that they contained as for the commentary. In the last few years, with improved availability of data online, these two documents have lost some of their importance as data sources. However, they still continue to be useful as starting points for data search.
But, apart from the data, what about the commentary in the document? What is it that can be gleaned by reading the document? As Nehru put it his 1958-59 Budget speech, the Survey should provide a review of “…the economic conditions in the country during the current year against the background of which the Budget has to be considered.” Such a review containing alternative interpretations of developments and policies following therefrom can be useful to the honourable members of Parliament during the parliamentary debates in the Budget session.
But, does the Economic Survey reveal what is likely to come in the Budget or what the experts “really” believe should be done? The answer to both is no. The reasons are manifold. First, there is the issue of secrecy. The Survey cannot steal the thunder that, rightly or wrongly, lies in the Budget and reveal it in advance. Second, in recent years, the Survey has contained some interesting original research of the government experts, which have not been subjected to peer reviews or published in refereed journals. Leaving aside the issue of the Survey as a medium of propagating such original research, can these provide the basis of policies? Third, often the government experts’ views may not be congruent to that of the political leadership. Sometimes those views are aired in the Survey only to be contradicted by subsequent policy actions and leaving either the experts or the leadership or both embarrassed.
Last but not the least, there are the “trial balloons”. The chief economic adviser (CEA) has been and is the main driver of the Economic Survey. In a seminar, a former joint secretary of the Ministry of Finance once reported that a CEA, in the context of the Economic Survey, asked the finance minister what he was doing. “You sometimes produce a trial balloon. We float it and if we get too much flak, we desist” came the reply. You take those trial balloons in the Survey seriously only at your own risk.