What ails the latest Economic Survey?

Perhaps the authors realise that the FM has his own compulsions and suggesting unpalatable solutions would only give ammunition to critics

DS Saksena | March 7, 2018


#Economic Survey   #Arun Jaitley   #Budget 2018   #Economy   #GDP  
 Chief Economic Adviser Arvind Subramanian
Chief Economic Adviser Arvind Subramanian

The preface of the current Economic Survey concludes with the words of TS Eliot: “For last year’s words belong to last year’s language. And next year’s words await another voice”, which is highly apt considering the change in narrative from the last year’s Survey.

For example, while last year’s survey portrayed demonetisation as an impetus to the economy, the latest survey portrays demonetisation as a blow from which the economy is recovering slowly. There is a mismatch even between the two volumes of the current Survey: our annual per capita income is given at $6,538 [that is, Rs 424,195.75] in volume 1 (page 69) while in volume 2 (page 7) it gets reduced to Rs 86,630.

Perhaps, deliberately, the tone of the survey is kept highly cheerful with disturbing facts not being mentioned at all or at best being glossed over. While complimenting the government on the increase in the GST registrants – which is worked out in a highly convoluted fashion – the Survey omits to mention the fact that only half of the registered taxpayers are filing GST returns or that most of the taxpayers are facing difficulties in complying with GST requirements. Similarly, the Pradhan Mantri Fasal Bima Yojana is unreservedly lauded without even once alluding to the fact that farmers are unable to realise their claims on crop losses while the insurance companies are making a killing – a finding which has found mention in the Comptroller and Auditor General’s report.   

Doubtlessly, the Economic Survey has some brilliant insights with the chapter on gender inequalities being particularly incisive, but at times the survey starts sounding like typical government propaganda. An example that comes to mind is the chapter on climate change and agriculture wherein the Economic Survey has predicted a fall of up to 25% in farm income due to climate change and has suggested an increase in productivity as an antidote to this eventuality.

This suggestion is contrary to economic theory. Nobel Laureate Paul A Samuelson had observed in “Economics: An Introductory Analysis” that years of good harvests often result in lower income for farmers because of abundant availability in the market. At the ground level, one may easily correlate the farmers’ misery with increasing agricultural production unaccompanied by adequate marketing facilities. The Economic Survey (Volume 2) has itself noted that agricultural production peaked in 2017 – the year of maximum farmer distress. Obviously, rather than increasing production, better agricultural policies leading to easy credit and easy marketing of agricultural produce are needed to guarantee better returns for farmers. The government’s practice of importing agricultural produce and restricting exports when prices are rising has ensured that farming is never profitable.

Such inconvenient facts are not even touched upon; rather the open market sale scheme (OMSS) which depresses the prices of agricultural produce is highly appreciated. Similarly, the increase in buffer stock of food grains to 20 million tonnes is unconditionally praised; there is no mention of the humongous cost of storage or the degradation in quality. It is easy to see that we would be have been better off by keeping a small stock as buffer and exporting the remaining surplus.

The Economic Survey maintains an almost studied silence on what the government can do to mitigate the problems identified it. Thus, while commenting on the poor educational facilities, Right to Education (RTE) is touted as a panacea disregarding the disputes about its efficacy; no suggestion is made for improving the state of government schools. Sometimes, wrong statistics are quoted to arrive at a particular conclusion. According to the Economic Survey, the share of direct taxes in the total taxes collected has been around 30% in the last 50 years, while according to government of India statistics, the share of direct taxes peaked at 61% in 2009-10 and is still around 50%. Based on its faulty statistics the Economic Survey has predicted a withering away of direct taxes consequent to buoyancy in GST. Contrarily, at another place, while praising direct tax implementation, the Survey has observed that there has been an increase in direct tax buoyancy. In its conclusion, the Economic Survey has also noted a marked under-collection in direct taxes. Both these assumptions are demonstrably incorrect. Direct tax collection has increased from Rs 83,088 crores in 2002-03 to Rs 8,49,818 crores in 2016-17 – far above the rate of increase in GDP – putting at rest the myth of massive under-collection. The Economic Survey has omitted to mention the reason for the current upsurge in indirect taxes which most probably is the levy of VAT at unconscionable rates on petroleum products.

Since direct taxes promote equality between the rich and poor and indirect taxes widen the disparity, the authors of the Economic Survey should have suggested measures to augment direct taxes and reduce indirect taxes instead of simply noting that direct taxes are plummeting while indirect taxes are buoyant.

The Economic Survey has covered a wide range of social and economic topics with rare scholarship and research but omission of some highly relevant but inconvenient topics like inequality and unemployment lays it open to the charge of partisanship. At other places, problems have been correctly identified but the Survey is strangely reticent in suggesting solutions. Probably, the authors realise that the finance minister has his own compulsions and suggesting unpalatable (to the government) solutions would only give ammunition to the government’s critics.

At another level, Bibek Debroy, chief of the economic advisory council to the prime minister, while complimenting the Economic Survey on its analysis of various topics had foretold that there would hardly be any convergence between the contents of the Budget and the Economic Survey. In fact, the disconnect between the Economic Survey and the Budget has been evident all along. This being the case, despite some contradictions and fallacies, the Economic Survey has to be respected for its excellent penmanship and presentation rather than taking the Economic Survey as the government’s statement on the state of the economy.

Saksena, an IRS officer of  the1979 batch, retired as principal chief commissioner of income-tax, Mumbai.


(The column appears in the March 15, 2018 issue)

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