Budget 2018: After Economic Survey 2018, all eyes on what Jaitley does on Feb 1
BUDGET 2018 In its own #MeToo moment, the Economic Survey2018 was released with a symbolic pink cover and a dedicated chapter on India's notorious gender issues.The Survey, over the last few years under Arvind Subramanian, has provided a refreshing take on resolving the challenges facing the Indian economy. In the past, he has given quite a few out-of-the-box policy recommendations like the establishment of a bad bank for resolution of the problem of bad loans and implementation of a universal basic income to do away with the inefficiency of
subsidies. The document this year is no less insightful. The Survey places the GDP growth estimate for the current fiscal at 6.75 per cent. This figure is a tad higher than the Central Statistics Office's projection at 6.5 per cent, as in its own estimates, it has not incorporated the pick-up in growth in the latter half of the year. Moreover, the Survey estimates that, as a result of the reforms undertaken this year, real GDP growth will rise by 7 to 7.5 per cent in the next fiscal. This would reinstate India's position as the fastest-growing major economy in the world. On India's economic growth in the recent past, the Survey highlights an interesting aspect. Over the last 4-6 quarters, India's growth has temporarily decoupled with that of the world economy. Until early 2016, economic growth in India was accelerating while that of other countries was decelerating. Since then the opposite has been true. This was due to a combination of five factors. First, until mid2016, real interest rates were following the downward global trend after which India's rates deviated and started shifting upwards. This affected investment activity negatively and resulted in an appreciation of the rupee, which subdued export activity. The second and third factors were the twin effects of demonetisation and the Goods and Services Tax (GST). The fourth was the twin balance sheet (TBS) challenge of banks and corporates while the final factor was the uptick in oil prices over the first three quarters of 2017-18. However, of late, India is displaying a robust revival in growth along with the world economy, signalling an end of the temporary decoupling it witnessed. The story of revival in the Survey is also punctuated with warnings of risk factors within the economy. The biggest challenge in the upcoming fiscal arises from the rise in oil prices. The Indian economy always finds its growth story challenged by twin deficits within its fiscal and current accounts owing to variability in the global oil prices. The economy needs to
find a sustainable solution to this historical macro-economic vulnerability by rapidly ramping up its strength on the export front, preferably in manufactured goods.