Economic Survey 2020: There is definitely some optimism in the numbers which can be justified as coming over a low base in FY20. However, this also means that any unfavourable event can upset fiscal numbers. But this is a risk which all the finance ministers have to take.
The Economic Survey is sanguine about growth in the next year at 6.5% though there will be fiscal challenges along the way. The Economic Survey is quite appropriately in two parts. While the first volume providing useful policy hints, the second provides factual information on the progress of the country’s economy.There are three interesting takeaways in the first volume.
The first is that a theoretical perspective has been provided on the recent controversy on the veracity of the gross domestic product (GDP) growth numbers.
It has been proved that the approach taken by the earlier research scholars was flawed.
This is comforting because it reinforces confidence in the numbers brought out by the Central Statistics Office (CSO).
Second, a prescription is made to have less of government in non-essential areas and here the suggestion is to have fewer controls and more disinvestment.
Area like agriculture, drugs and pharma, subsidies and loan waivers have been covered quite extensively to show that there should be more market forces and less government.
In the same vein, the Economic Survey is also emphatic about disinvestment being a serious business where the government’s stake goes below 51% and a framework of setting up a special body to transfer such stake is proposed.
Third, there is an interesting chapter on the use of a health card for non-banking financial companies (NBFCs) so that they can be monitored in a better manner, and more importantly, regulators can pick up early warning signals before a crisis really erupts. This is very pragmatic and we can see some action being taken immediately.
Simultaneously, it argues for quicker resolution processes under the Insolvency and Bankruptcy Code (IBC) framework. While it is admitted that the IBC has a been a positive story, banks need the comfort of faster resolution to enable them to lend more for long-term projects.
The Economic Survey is sanguine about growth in the next year at 6.5% though there will be fiscal challenges along the way.
The government should not be relying too much on non-tax revenue and hence, tax revenue is critical that is finally linked with growth in GDP. Similarly, with tax collections coming down in FY20, the government should be closely monitoring the numbers especially on the goods and services tax (GST) front as this reform was to be a major game-changer.
However, interestingly, the Economic Survey also talks about the need for having pro-cyclical fiscal policies meaning thereby that the government should be spending more even if it means crossing the Fiscal Responsibility and Budget Management (FRBM) line. Here, it should be noted that based on past Economic Surveys where the chief economic adviser (CEA) has expressed certain views, they are not automatically included in the Union Budget and hence, these suggestions should be read with this in mind. The CEA has a contrary view on inflation and argues here that temporary spikes in food prices should not be a limiting factor in monetary policy decision making.
A unique ‘thali-nomics’shows that price of basic food has actually come down. It needs to be seen if the Monetary Policy Committee (MPC) pays heed to this advice when it meets on February 4.
However, the growth projected for next year is probably the most critical part of the Budget because the real growth rate is normally added to inflation which would be probably 4% to arrive at nominal growth of 10.5%.
This would serve as the benchmark for all budgetary numbers as it will give an idea of how various tax collections would move besides having a bearing on the fiscal deficit, revenue deficit and debt ratios.
Hence, there is definitely some optimism in the numbers which can be justified as coming over a low base in FY20. However, this also means that any unfavourable event can upset fiscal numbers. But this is a risk which all the finance ministers have to take.
The Economic Survey is sanguine about growth in the next year at 6.5% though there will be fiscal challenges along the way. The Economic Survey is quite appropriately in two parts. While the first volume providing useful policy hints, the second provides factual information on the progress of the country’s economy.There are three interesting takeaways in the first volume.
The first is that a theoretical perspective has been provided on the recent controversy on the veracity of the gross domestic product (GDP) growth numbers.
It has been proved that the approach taken by the earlier research scholars was flawed.
This is comforting because it reinforces confidence in the numbers brought out by the Central Statistics Office (CSO).
Second, a prescription is made to have less of government in non-essential areas and here the suggestion is to have fewer controls and more disinvestment.
Area like agriculture, drugs and pharma, subsidies and loan waivers have been covered quite extensively to show that there should be more market forces and less government.
In the same vein, the Economic Survey is also emphatic about disinvestment being a serious business where the government’s stake goes below 51% and a framework of setting up a special body to transfer such stake is proposed.
Third, there is an interesting chapter on the use of a health card for non-banking financial companies (NBFCs) so that they can be monitored in a better manner, and more importantly, regulators can pick up early warning signals before a crisis really erupts. This is very pragmatic and we can see some action being taken immediately.
Simultaneously, it argues for quicker resolution processes under the Insolvency and Bankruptcy Code (IBC) framework. While it is admitted that the IBC has a been a positive story, banks need the comfort of faster resolution to enable them to lend more for long-term projects.
The Economic Survey is sanguine about growth in the next year at 6.5% though there will be fiscal challenges along the way.
The government should not be relying too much on non-tax revenue and hence, tax revenue is critical that is finally linked with growth in GDP. Similarly, with tax collections coming down in FY20, the government should be closely monitoring the numbers especially on the goods and services tax (GST) front as this reform was to be a major game-changer.
However, interestingly, the Economic Survey also talks about the need for having pro-cyclical fiscal policies meaning thereby that the government should be spending more even if it means crossing the Fiscal Responsibility and Budget Management (FRBM) line. Here, it should be noted that based on past Economic Surveys where the chief economic adviser (CEA) has expressed certain views, they are not automatically included in the Union Budget and hence, these suggestions should be read with this in mind. The CEA has a contrary view on inflation and argues here that temporary spikes in food prices should not be a limiting factor in monetary policy decision making.
A unique ‘thali-nomics’shows that price of basic food has actually come down. It needs to be seen if the Monetary Policy Committee (MPC) pays heed to this advice when it meets on February 4.
However, the growth projected for next year is probably the most critical part of the Budget because the real growth rate is normally added to inflation which would be probably 4% to arrive at nominal growth of 10.5%.
This would serve as the benchmark for all budgetary numbers as it will give an idea of how various tax collections would move besides having a bearing on the fiscal deficit, revenue deficit and debt ratios.
Hence, there is definitely some optimism in the numbers which can be justified as coming over a low base in FY20. However, this also means that any unfavourable event can upset fiscal numbers. But this is a risk which all the finance ministers have to take.
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