The Economic Survey, as a document, is supposed to be a round-up of all economic activity in the previous year with a prognosis of the state of things to come. Also, there are certain suggestions made on critical issues to be addressed by the government in the coming years.
Coming just before the Budget is announced, it is not supposed to speak on the content or direction, thus running the risk of sounding banal. It also has the disadvantage of narrating numbers that have been released independently by various ministries and consolidated by the RBI earlier in their monetary policy previews. It, hence, sounds like a dossier of consolidation of all pressing issues. But it is nonetheless useful.
The forecast of GDP growth has been kept at a reasonable range of 5.4-5.9% with a downward bias, which is significant because it means that the Budget will stick to this number when conjecturing tax revenues, which is pragmatic. The survey also sticks its neck out and extrapolates industrial growth in April for the entire year.
One assumes that it would be in the range of 2-3% or else we could end up overstating excise and corporate tax collections for FY15.
Concerns have been reiterated on inflation and quality of assets of the banking system, while there is a modicum of satisfaction expressed when it comes to the performance of the external sector in particular.
On the fiscal front, two issues have been highlighted, which though could be standardised statements that go with an economic policy document, could be read as being indicative of something new that could be announced in the Budget.
The first is a new FRBM rule book. So far, fiscal discipline has been restricted mainly to achieving a tolerable level of fiscal deficit to GDP ratio with 3% being targeted as an end point. Could we actually see a proposed path for revenue deficit or disinvestment or for that matter systematic reduction of the subsidy bill to a new level of say 1.5% of the GDP?
The second point is that by reiterating the composition of subsidies and their allocation, there may be an attempt to actually rework these numbers for fertilisers and also use alternative delivery systems for the food subsidy.
The survey is quite acerbic when it explains the reasons for investment slowdown which was due to bureaucratic delays, alleged corruption, policies on land acquisition, environment, and ambitious financial projections for infra projects by over-leveraged firms etc. which has led to stalled projects.
It concludes that the first wave of infra investment has been grounded due to these multiple flaws that need to be corrected. It may be assumed that this will be taken with urgency.
Quite interestingly, the survey does highlight that the stimulus oriented policies pursued by the government post financial crisis contributed to inflation – which is debatable as inflation appears to be on the supply side where shortfalls have led to price increases. But this is indicative that the Budget for FY15 will not quite look to pump priming the economy as there was an expectation that a certain amount may be earmarked for project expenditure.
This looks unlikely if the author of the document has his or her thoughts in the Budget document too.
Coming just before the Budget is announced, it is not supposed to speak on the content or direction, thus running the risk of sounding banal. It also has the disadvantage of narrating numbers that have been released independently by various ministries and consolidated by the RBI earlier in their monetary policy previews. It, hence, sounds like a dossier of consolidation of all pressing issues. But it is nonetheless useful.
The forecast of GDP growth has been kept at a reasonable range of 5.4-5.9% with a downward bias, which is significant because it means that the Budget will stick to this number when conjecturing tax revenues, which is pragmatic. The survey also sticks its neck out and extrapolates industrial growth in April for the entire year.
One assumes that it would be in the range of 2-3% or else we could end up overstating excise and corporate tax collections for FY15.
Concerns have been reiterated on inflation and quality of assets of the banking system, while there is a modicum of satisfaction expressed when it comes to the performance of the external sector in particular.
On the fiscal front, two issues have been highlighted, which though could be standardised statements that go with an economic policy document, could be read as being indicative of something new that could be announced in the Budget.
The first is a new FRBM rule book. So far, fiscal discipline has been restricted mainly to achieving a tolerable level of fiscal deficit to GDP ratio with 3% being targeted as an end point. Could we actually see a proposed path for revenue deficit or disinvestment or for that matter systematic reduction of the subsidy bill to a new level of say 1.5% of the GDP?
The second point is that by reiterating the composition of subsidies and their allocation, there may be an attempt to actually rework these numbers for fertilisers and also use alternative delivery systems for the food subsidy.
The survey is quite acerbic when it explains the reasons for investment slowdown which was due to bureaucratic delays, alleged corruption, policies on land acquisition, environment, and ambitious financial projections for infra projects by over-leveraged firms etc. which has led to stalled projects.
It concludes that the first wave of infra investment has been grounded due to these multiple flaws that need to be corrected. It may be assumed that this will be taken with urgency.
Quite interestingly, the survey does highlight that the stimulus oriented policies pursued by the government post financial crisis contributed to inflation – which is debatable as inflation appears to be on the supply side where shortfalls have led to price increases. But this is indicative that the Budget for FY15 will not quite look to pump priming the economy as there was an expectation that a certain amount may be earmarked for project expenditure.
This looks unlikely if the author of the document has his or her thoughts in the Budget document too.
No comments:
Post a Comment