DNA Edit: Cautious optimism

There is a flurry of good news for the Central government in the Economic Survey of 2018. In more ways than one, the Economic Survey has given teeth to the government by presenting statistical evidence on the two sweeping economic undertakings that have become the hallmarks of the BJP government – demonetisation and GST. On both the counts, the government has much grist now to counter the hackneyed, tired arguments deprecating GST and demonetisation for denting the economy.

As per the Economic Survey, the collective effect of demonetisation and the GST was such that it added close to 18 lakh new taxpayers. Interestingly, the addition of new taxpayers between November of 2016 and 2017 trumped the earlier addition of taxpayers by a significant 31 per cent. This evidence will help the government to bolster the narrative that their reform agenda is on track, despite the shaky jerks that the economy experienced once the demonetisation and the GST were put into action. The survey also highlights an incipient trend in the Indian economy: Progressively, the Indian non-agricultural workforce is coming under the rubric of a formal economy, which is to say that at least a third of the 24 crore workforce is receiving some kind of social security cover while over half of them are now working for firms that pay indirect  tax.

Additionally, in the aftermath of demonetisation, the share of financial savings in aggregate household savings has risen with a “clear shift visible towards market instruments”, which, in part, explains the prevailing optimism in the equity markets. Finance Minister Arun Jaitley will also be drawing some comfort from the fact that the Survey expects the economy to grow in the range of 7-7.5 per cent in FY19. For the current fiscal, the Chief Economic Advisor Arvind Subramanian has pegged the GDP growth at 6.75 per cent, marginally higher than the estimate of 6.5 per cent made by the Central Statistics Office.

However, the Survey also marks out that this growth is precarious, and can come undone if global crude oil prices record a strong upward trend. The rise in crude oil prices can be foiled, to some extent, provided the government aggressively pushes ahead with its course-correction blueprint. It will have to expeditiously resolve the twin-balance sheet problem by removing legal obstructions that retard the pace at which cases are resolved under the new Indian Bankruptcy Code. What’s more, Jaitley will have to signal to the market as well as the industry at large that the BJP government is still committed to pulling the chestnuts out of the fire for the public sector banks. As per data from the Reserve Bank of India, for the fortnight ended December 22, the banking domain registered a small uptick in credit growth for the first time since September 2016 suggesting that a revival is in the works. However, the corporate loan book shoots down any cheer one might draw from these green shoots.