IndiaToday.in New Delhi, February 27, 2015 | UPDATED 13:56 IST
Pitching for 'Big Bang' reforms, the pre-budget Economic Survey called for improving business environment by making regulation and taxes less onerous to help push growth to 8.1-8.5 per cent next fiscal, and to double digits in the coming years.
Here are highlights of Economic Survey 2014-15
Economic Outlook, Prospects, and Policy Challenges
1. India has reached a sweet spot - rare in the history of nations - in which it could be launched on a double digit medium-term growth trajectory which would allow the country to attain the fundamental objectives of "wiping every tear from every eye".
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2. The macro-economy has been rendered more stable, reforms
have been launched, deceleration in growth has ended and the
economy appears to be recovering.
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3. In the coming year, the real GDP growth at market prices is estimated to be about 0.6-1.1 percentage points higher vis-Ã -vis 2014-15. Using the new estimate for 2014-15 as the base, growth at market prices is expected at 8.1-8.5 percent in 2015-16.
4. The budget should continue the process of fiscal consolidation. Overall revenue-to-GDP ratio for 2014 as estimated at 19.5 percent by the IMF, needs to move toward levels in comparator countries - estimated at 25 percent for emerging Asian economies and 29 percent for the emerging market countries in the G-20.
5. To provide legal certainty and confidence to investors, the ordinances on coal, insurance, and land need to be translated into legislation.
6. The constitutional amendment bill to implement the goods and services tax (GST) needs to be enshrined in legislation.
7. The government and the RBI need to conclude the monetary policy framework agreement to consolidate the recent gains in inflation control and codify into an institutional arrangement.
8. Reforms of labor and land laws and reducing the costs of doing business will need to be a joint endeavor of the states and center.
9. The economy is likely to over-perform on the RBI's inflation target by about 0.5-1.0 percentage point, opening up the space for further monetary policy easing.
10. The outlook is favorable for the current account and its financing. However, risks from a shift in US monetary policy and turmoil in the Eurozone need to be watched.
11. Successful implementation of the far-reaching changes for sharing of revenues between the Center and the States as recommended by the Fourteenth Finance Commission will advance the cause of cooperative federalism.
12. The time is ripe for a more broad-based response to the challenges in agriculture and to ensure that agriculture grows at about 4 percent on a sustained basis.
13. To ensure fiscal credibility, and consistency with the medium-term goals, the upcoming budget should initiate the process of expenditure control to reduce both the fiscal and revenue deficits.
14. Cash-based transfers based on the JAM number trinity - Jan Dhan, Aadhaar, Mobile offer exciting possibilities to effectively target public resources to those who need it most.
15. Private investment must remain the main engine of long-run growth. But in the short to medium term public investment especially by the railways, will have to play a catalytic role.
16. Banking is hobbled by policy, which creates double financial repression and impedes competition.
17. The solution lies in a four-fold policy response captured in 4 Ds: deregulate, differentiate, diversify, and disinter.
18. The Prime Minister's Skill India objective should be accorded high priority along with, and indeed in order to realize, "Make in India."
19. An intervention that can be immediately implemented is to eliminate the current negative protection facing Indian manufacturing.
20. The trading environment is becoming more challenging as the buoyancy of Indian exports has declined.
21. India has taken a number of green actions. It can make a positive contribution to the forthcoming Paris negotiations on climate change.
22. Improving the status and treatment of women is a major development challenge.
23. Family planning targets and the provision of incentives are leading to an undesirable focus on female sterilization. Family planning program should align with reproductive health rights of women.
24. Successful implementation of the far-reaching changes for sharing of revenues between the Center and the States as recommended by the Fourteenth Finance Commission will advance the cause of cooperative federalism.
Fiscal Framework
1. India must meet its medium-term fiscal deficit target of 3 percent of GDP. This will provide the fiscal space to insure against future shocks.
2. India must also reverse the trajectory of recent years and move towards the golden rule of eliminating the revenue deficit and ensuring that, over the cycle, borrowing is only for capital formation.
3. The way to achieve this objective should be based on firm control over expenditures, most notably by eliminating leakages in subsidies and social expenditures.
'Wiping every tear from every eye': the JAM Number Trinity Solution
1. Price subsidies are often regressive, a rich household benefits more than a poor household.
2. Leakages in subsidies are large and can be reduced without compromising household welfare.
3. Cash transfers can augment the effectiveness of existing anti-poverty programs.
4. The JAM Number Trinity - Jan Dhan Yojana, Aadhaar and Mobile numbers - allows the state to offer this support to poor households in a targeted and less distortive way.
5. Two alternative financial delivery mechanisms are suggested - Mobile Money - with over 900 million cell phone users, it offers tremendous opportunities to direct Aadhaar based transfers, Post Offices - the large Postal Network in India can seamlessly fit into the Aadhaar linked benefits-transfer architecture.
The Investment Climate: Stalled Projects, debt Overhang and the Equity Puzzle
1. The stalling rate of projects has been increasing at an alarmingly high rate in the last five years, and rate is much higher in the private sector.
2. The good news is that the rate of stalling seems to have plateaued in the last three quarters.
3. The stock of stalled projects has come down to about 7 percent of the GDP at the end of the third quarter of 2014-15 from 8.3 percent the previous year.
4. Manufacturing dominates in total value of stalled projects even over infrastructure. The government's stalled projects are predominantly in infrastructure.
5. Stalling of projects is severely affecting the balance sheets of the corporate sector and public sector banks, which in turn is constraining future private investment.
6. Despite high rates of stalling, and weak balance sheets, the equity market seems to be performing quite well.
7. Expectation that the private sector will drive investment needs to be moderated. In this light, public investment may need to step in to recreate an environment to crowd-in private sector investment in the short term.
8. Efforts must be made to revitalize the public-private partnership model of investment, albeit in a different manner.
Credit, Structure and Double Financial Repression: A Diagnosis of the Banking Sector
1. The Indian banking system is affected by what might be called "double financial repression."
2. Financial repression on the asset side of the balance sheet is created by the statutory liquidity ratio (SLR) requirement that forces banks to hold government securities, and priority sector lending (PSL).
3. Financial repression on the liability side has arisen from high inflation since 2007, leading to negative real interest rates, and a sharp reduction in households' financial savings.
4. There appears to be a lack of competition, reflected in the private sector banks' inability to increase their presence.
5. Even within the public sector banks there is sufficient variation in performance.
6. The four key policy recommendations are the 4Ds -deregulate, differentiate, diversify and disinter.
Putting Public Investment on Track: The Rail Route to Higher Growth
1. The decline in public as well as private corporate investment has been associated with the growth decline in recent years.
2. The two biggest challenges facing increased public investment in India are financial resources and implementation capacity.
3. The present government can now do for the neglected railways sector what the previous NDA government did for rural roads.
4. This impetus has the potential to crowd in greater private investment and do so without jeopardizing India's public debt dynamics.
5. Greater public investment in the railways would boost aggregate growth and the competitiveness of Indian manufacturing substantially.
6. In the long run, the railways must be commercially viable.
What to Make in India? Manufacturing or Services?
1. It is registered manufacturing, not manufacturing in general, which has the potential for structural transformation. It is characterized by unconditional domestic convergence.
2. States and firms within India are converging to the Indian frontier but that could mean little unless they are also converging to the international manufacturing frontier.
3. The talk on the transformational potential of manufacturing in India must focus on unskilled registered manufacturing.
4. Sustaining a skill-intensive pattern would require a greater focus on education and skills development.
A National Market for Agricultural Commodities - Some Issues and the Way Forward
1. The provisions of the Model APMC Act do not go far enough to create a national - or even state-level common market for agricultural commodities.
2. The 2014 budget recognizes the need for setting up a national market and stated that the central government will work closely with the state governments to reorient their respective APMC Acts to provide for the establishment of private market yards/private markets.
3. More steps may have to be taken and incremental moves may need to be considered to get the states on board. For example, first it may be possible to get all the states to drop fruits and vegetables from the APMC schedule of regulated commodities, followed by cereals, pulse and oil seeds, and then all remaining commodities.
4. State governments should also be specifically persuaded to provide policy support for setting up infrastructure, making available land etc. for alternative or special markets in private sector.
From Carbon Subsidy to Carbon Tax: India's Green Actions
1. The recent steep decline in international oil prices is seen by many as an opportunity to rationalize the energy prices by getting rid of the distorting subsidies whilst shifting taxes towards carbon use.
2. India has cut subsidies and increased taxes on fossil fuels turning a carbon subsidy regime into one of carbon taxation.
3. The move to substantial carbon taxation combined with India's ambitious solar power program suggests that India can make substantial contributions to the forthcoming Paris negotiations on climate change.
The Fourteenth Finance Commission (FFC) - implications for Fiscal Federalism in India
1. The FFC has radically enhanced the share of the states in the central divisible pool from the current 32 percent to 42 percent.
1. The FFC has radically enhanced the share of the states in the central divisible pool from the current 32 percent to 42 percent.
2. The FFC has also proposed a new horizontal formula for the distribution of the states' share in divisible pool among the states.
3. The recommendations will move the country toward greater fiscal federalism, conferring more fiscal autonomy on the states.
