Public Forum : Economic Survey (2016-2017)
The Economic Survey 2016-17 has been recently released which says that the economic growth will return to normal as new currency notes in required quantity have come into circulation and follow-up action on demonetization has been taken. It also says that the Rupee performed better than the currencies of most the emerging market economies.
The presentation of the survey has been different this time because it is for a period of 10 months instead of 12 months. This time the Budget came on 1st February instead of 31st March. All the parameters which have been taken into consideration is for the period April to November. There are some major pointers on how reforms in the economy are taking place.
Key Takeaways:
- Economic growth is expected to return to normal
- GDP growth for 2017-18 pegged at 6.75-7.5%
- GDP growth for 2016-17- 7.1%
- New currency notes in required quantities have come back into circulation.
- Demonetization to affect growth rate by 0.25 to 0.5%
- GST and other structural reforms are expected to take the trend growth rate from 8-10%. Fiscal gains from GST will take time to realize
- Inflation remained stable in current fiscal year to around 5%
- Rupee performed better than other emerging market economies.
- Fixed Investment to GDP ratio is expected to be 26.6% in 2016-17.
- Growth in indirect taxes- 26.9% during April-November 2016
- Demonetization may affect supplies of certain agricultural products.
- Decline in imports- 7.4% to US$ 275.4 billion.
- Trade deficit declined to US$ 76.5 billion
- Industrial sector growth rate moderate to 5.2% in 2016-17 from 7.4% last fiscal.
- Infrastructure supportive industries registered a cumulative growth of 4.9%
- Parliament has passed the Rights of Persons with Disabilities Act, 2016
Analysis:
The Economic Survey has favoured the concept of Universal Basic Income (UBI) as an alternate to the various social welfare schemes in an effort to reduce poverty. It also supports demonetization. This will increase bureaucratic efficiency and give rise to GDP as subsidies will be done away with. The cultivation area for Rabi crops have gone up which is the reason for growth in agriculture. There is also a growth in the core industries by 4.9% but the fact is only the data from April to November have been considered here.
Trade deficit has declined and exports have grown marginally. If the trade deficit goes down, it signals that Rupee is becoming stable. In 2013, Rupee fell significantly because the long term debt and short term debt had gone up phenomenally which has come down at present from 33% to 16.8% approximately.
When GST comes, large number of indirect taxes which will be combined into one. There will be less burden on tax payers and tax collectors also as more efficiency comes in. The revenue losses which occurred during demonetization are expected to be covered through GST.
The ability of the corporates to invest and the stress on the banking sector are two major areas to stress upon. Since the NPAs are rising, bank credits are not coming in the industrial segment. Private investment is not taking place in the economy. Banks now have to be recapitalized in a way so that credit off take starts from there. Fiscal deficit is in control and therefore, Government needs to kick start investment.
Despite having Schemes like Start Up India and Stand Up India Make in India etc, growth in employment has not been significant. Migration for work and education is also accelerating. Focus needs to be towards labour-intensive sectors such as apparel and leather and skill development of labourers.
Conclusion:
Fast remonetization and free convertibility of cash to deposits including early elimination of withdrawal limits would reduce the GDP growth deceleration and cash hoarding. Continued impetus to digitalization ensuring that this transition is gradual, inclusive, based on incentives and maintaining a balance between cash versus digitalization would help further. Lastly, an improved tax system will promote greater income declaration and do away with the fears of over-zealous tax administration.
