The worst is over for the economy

Now create an environment conducive to private investment

The annual Economic Survey presented by the finance ministry’s economists is usually a good explainer of the state of the Indian economy, although it isn’t an indicator of the contents of the Union Budget which follows it. The survey projects that the Indian economy will expand by between 7% and 7.5% in 2018-19, a number not very different from that estimated by the World Bank and the International Monetary Fund. It also estimates that the economy will expand by 6.75% in 2017-18. The fact that things are looking up on the economic front is already evident in several so-called high-frequency indicators (or, simply, data that is collected and presented relatively frequently). History will likely recognise the implementation of the Goods and Services Tax and the introduction of a bankruptcy code as fundamental structural reforms, and the survey acknowledges both. The second, along with the effort to recapitalise banks, addresses what is popularly called the twin balance sheet problem (bad loans on the books of banks, and debt on the books of companies). The first, apart from creating a unified market, is also helping formalise the Indian economy and should, over time, result in an increase in tax revenue.

The big picture presented by the survey — it also points to an increase in the number of people filing income tax returns, the return of growth in India’s export trade, and other positives — is of an economy that is becoming increasingly tax compliant, and is poised for growth, although, as the document admits, there are still challenges when it comes to both consumption-driven growth and increasing private investment. The real challenge — apart from rising oil prices which could wreak havoc on India’s finances, as the survey points out — lies elsewhere. The biggest issues facing the Narendra Modi government in the run-up to the Lok Sabha elections in 2019 are employment and the ongoing crisis in agriculture. The survey picks both as issues that need to be addressed immediately. Worryingly, it points out that “climate change — whose imprint on Indian agriculture is already visible — might reduce farm incomes by up to 20-25% in the medium term”. The solution will involve more science (and the survey acknowledges this) but it should also involve more markets. As for employment, the survey is right in listing “private investment and exports” as the only two “truly sustainable engines”. India would do well to focus its efforts on creating an environment conducive to private investment and on increasing its export competitiveness. That might be the key to creating jobs.

For those looking for a pithy message in the Survey, it is this: The worst is over; things are getting better; but there’s work to be done. It’s now up to the finance minister and the Union Budget.