ECONOMIC SURVEY: F1Y9 COULD BE A DREAM BUT FOR.....

By Ruma Dubey

The Economic Survey has been tabled today, breaking the tradition of usually presenting this important financial document a day before the Union Budget; for the first time, it is presented three days before.

This document is basically an annual statement which is put together by the Finance Ministry of India, showcasing the economic development during the course of the year. The draft of the survey is prepared by Department of Economic Affairs and cleared by Chief economic Advisor and the secretary Economic Affairs. The final version is vetted by Finance secretary and Finance Minister. The Union Budget is a statement for the future while the Economic Survey is a statement of the past fiscal.

In that aspect, the Economic Survey is an important document because it helps us assess the performance of the country in the past fiscal, allowing us to compare the actual performance with what the Govt had promised in the Union Budget. At the same time, it shows us the general health of the economy, based on which we can get a rough idea about what to expect from the Union Budget.

So what does the Economic Survey of 2017-18 present this time? The Survey expects the FY18 GDP at 6.75%, similar to what it has estimated in FY17 Survey. It expects FY19 growth at 7 to 7.5%. This is good news as it expects the economy growth engine to take off in FY19. It is banking on private sector investment to take off and aid this growth. But putting in an air of caution, the FM has said that the takeoff of the private sector investment depends on resolution of stressed assets and recapitalisation of banks; if the NPA resolution does not happen as scheduled, the private capex cycle may take longer to pick up.

The challenge for the economy is crude oil, acknowledging that the current high price of crude is a major concern. The listing of Saudi oil major, Aramco is expected to buoy the oil prices further. The Survey has warned it is this one pin, which could burst the balloon of consumption demand; in a construed sort of way, the Survey does say that higher oil prices could lead to a tighter monetary policy.

On the fiscal front, the Survey has stated that they could be a pause. It stated that the measured deficit for current fiscal will include Rs.80,000 crore or 0.5% of GDP in capital provided to public sector banks though this might not impact the aggregate demand as it would be deemed as financing  rather than expenditure.

Talking about credibility, the Survey has rightly stated that giving out an over ambitious target for fiscal consolidation, given that it is a pre-election year, based on optimistic forecasts carry a high risk of not being realized and this is what could affect credibility. Having said all this, there is little doubt that the Govt will miss its fiscal deficit target of 3.2%. Though there has been a 30% increase in direct tax filers, the indirect tax collection could topple all the calculations.

The agenda for FY19 is:

• Stabilizing the GST
• Completing the Twin Balance Sheet (TBS) actions
• Privatizing Air India,
• Staving off threats to macro-economic stability - persistently high oil prices, and sharp, disruptive corrections to elevated asset prices.
• Employment: finding good jobs for the young and burgeoning workforce, especially for women.
• Education: creating an educated and healthy labor force.
• Agriculture: raising farm productivity while strengthening agricultural resilience.
• Growth to be fueled by two engines - private investment and exports.

A quick run through the highlights of Economic Survey 2017-18:

• India has two underlying macroeconomic vulnerabilities, its fiscal and current accounts, both of which tend to deteriorate when oil prices rise. Overcoming the fiscal vulnerability requires breaking the inertia of the tax-GDP ratio.
• The level of tax filers by November 2017 was up 31%, translating into roughly about 1.8 million additional tax payers due to demonetization-cum-GST, representing 3 percent of existing taxpayers. Further analysis suggests that new filers reported an average income, in many cases, close to the income tax threshold of Rs. 2.5 lakhs, limiting the early revenue impact.
• There has been a 50% increase in the number of indirect taxpayers; and a large increase in voluntary registrations, especially by small enterprises that buy from large enterprises and want to avail themselves of input tax credits.
• 50 percent increase in unique indirect taxpayers under the GST compared with the pre-GST system
• Addition (over and above trend growth) of about 1.8 million in individual income tax filers since November 2016
• India’s firm export structure is substantially more egalitarian than in other large countries Top 1 percent of Indian firms account for 38 percent of exports; in all other countries, they account for a substantially greater share (72, 68, 67, and 55 percent of exports in Brazil, Germany, Mexico, and USA respectively).
• The relief from embedded state taxes (ROSL) announced in 2016 boosted exports of ready-made garments (but not others) by about 16 percent.
• The tax department’s petition rate is high, even though its success rate in litigation is low and declining (well below 30 percent) - only 0.2 percent of cases accounted for 56% of the value at stake; whereas − about 66% of pending cases (each less than Rs. 10 lakhs) accounted for only 1.8% of the value at stake.
• The next frontier on the ease of doing business is addressing pendency, delays and backlogs in the appellate and judicial arenas.
• Compared to 2012, there is now a 25 percent increase in the size of unresolved cases. The average age of pending cases across these tribunals is 3.8 years.
• The total backlog in High Courts by the end of 2017 as per the National Judicial Data Grid was close to 3.5 million cases - average duration of pendency is arguably the worst of most cases, nearly 4.3 years for 5 major High Courts. The average pendency of tax cases is particularly acute at nearly 6 years per case.
• A total of 52 projects worth Rs.52,081 crore have been stayed , with the roads scoring the highest stays at 30.
• Currently, some 1079 positions are vacant in the judiciary (High court and Supreme Court) and 392 vacancies. These vacancies account for 36.3% of the total capacity and the current working capacity is at 63.6%.
• Long-term weather pattern implies that climate change could reduce annual agricultural incomes in the range of 15% to 18% on average, and up to 20 to 25% for unirrigated areas. More broadly, the cereal-centricity of policy needs to be reviewed.
• Vigorous efforts to improve the “ease of doing business” need to be matched by similar ones to boost the “ease of doing science.”

For a complete read of this extremely well-written huge document, you can go to: http://mofapp.nic.in:8080/economicsurvey/