Economic growth likely to be 8% with big reforms

Economic survey tells government to improve public expenditure

GN Bureau | February 27, 2015




The Economic Survey for 2014-2015, which normally gives indications of economic performance of the country and broad directions for the general budget forecasts a growth rate of over 8% for the financial year 2015-2016. However, farm output growth is likely to lag behind at 4 percent. It calls for quality public expenditure and a shift away from public consumption.

The survey, tabled on the floor of the parliament on Friday, has been prepared by the finance ministry's chief economic adviser Arvind Subramanian on the state of Asia's third-largest economy.

The growth estimates of over 8% are the basis of the new GDP (gross dometic product) calculation formula. Economic growth at market prices is expected to be between 8.1 and 8.5 percent, it said. As a consequence there is scope for big bang reforms now.

"The Economic Survey indicates that a clear political mandate for reform and a benign external environment now is expected to propel India on to a double digit trajectory. Indian economy appears to have now gone past the economic slowdown, persistent inflation, elevated fiscal deficit, slackening domestic demand, external account imbalances and oscillating value of the rupee," the survey said.

The government should ensure expenditure control to reduce fiscal deficit. So expenditure control and expenditure switching is key for government to achieve its fiscal deficit target. India must adhere to medium-term fiscal deficit target of 3 percent of the country's gross domestic product (GDP), says the survey. It says overhauling of subsidy regime would pave the way for expenditure rationalization.

The governments are expected to borrow over the cycle only to finance investment, and not to fund current expenditures. The survey says short-term targets should be set accordingly. Outlook for external sector is perhaps most favourable since 2008 financial crisis.

On employment the survey has shown that the cause for concern is the deceleration in the compound annual growth rate of employment during 2004-05 to 2011-12 to 0.5 percent from 2.8 percent during 1999-2000 to 2004-05 as against growth rate of 2.9 percent and 0.4 percent respectively in the labour force for the same periods.

Survey says that skill development and employment are the major challenged faced by the economy today. Dearth of formal vocational education, lack of variation quality, high school dropout rates, inadequate skill training capacity, negative perception towards skilling, and lack of industry ready skills even in processional courses are the major cause of poor skill levels of India’s workforce, it said.

Expressing serious concern over stalled projects, it suggested revitalizing public private partnership model of investment.

The survey has been divided into 17 chapters:  http://indiabudget.nic.in/survey.asp

1. Economic Outlook, Prospects, and Policy Challenges

2.  Fiscal Framework

3. 'Wiping Every Tear From Every Eye' : The JAM Number Trinity Solution

4. The Investment Climate: Stalled Projects, Debt Overhang and The Equity Puzzle

5. Credit, Structure and Double Financial Repression: A Diagnosis of the Banking Sector

6. Putting Public Investment on Track: The Rail Route to Higher Growth

7. What to Make in India? Manufacturing or Services?

8. A National Market for Agricultural Commodities - Some Issues and Way Forward

9.  From Carbon Subsidy to Carbon Tax: India’s Green Actions

10. The Fourteenth Finance Commission (FFC) - Implications for Fiscal Federalism in India?

11. State of the economy and Public Finance

12.Monetary management and financial intermediation

13.External sector and Service sector

14.Prices, agriculture and food management

15.Industrial, corporate and infrastructure performance

16.Climate change and sustainabke development

17.Social infrastructure, employment and human development

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