#dnaEdit: A sombre survey

If the pre-budget Economic Survey, placed by the finance minister this morning, sets any tone, it is one of conservative, cautious hopefulness in the midst of a not too comfortable overall economic situation. The Survey sets the growth prospects for the Indian economy between 5.4 per cent and 5.9 per cent in 2014-15, with its stated rational expectation of a bias towards the lower end of the range. Even if we take a middle course, the Indian economy could at best show a growth of 5.5 per cent during the current fiscal. Not clearly something to gloat over. But the fact remains that we are still able to score this much against an uncertain global scenario, escalating prices and volatile fiscal deficit.

Take for instance, the subsidy burden. Major subsidies had notched up a total of Rs2,47,596 crore in 2013-14, amounting to 2.26 per cent of GDP. This is the revised estimate for the year. For 2014-15 this might be much higher if the new food security act is implemented and fuel subsidies are not effectively capped. The Survey in fact takes note of the fact that food subsidy was shooting up because of the widening gap between the procurement costs of the Food Corporation of India and the central government’s issue prices. Additionally, there is the threat of larger coverage under the food security act. It is precisely against such a background that the Survey has ruled out any fiscal stimulus to “kick start economic activity”. Instead, the Survey prudently states that “reversion to a growth rate of around 7-8 per cent can only happen at least two years from now.  

For achieving that long-term potential growth rate, it is essential to address some of the structural problems. Three issues stand out here. First, India’s industrial sector has become stagnant. Many of the industry segments, including since recently the consumer goods and consumer durables industries, are shrinking. The indices of industrial production — month after month — show that. The share of manufacturing in India’s GDP is meagre. At this point in time, India’s potential cannot be realised without an expanding industrial sector. Secondly, India’s external balance must be carefully monitored and calibrated. Large current account deficit leaves a spill-over effect which destabilises the entire economy, as we have seen in the last two years when run-away CAD virtually brought India to its knees. Thirdly, the supply-side compulsions of the growth inflation dynamics must be addressed for overall macro-economic stability. Inflation had proved to be defiant and in times of persistent price rise, Reserve Bank cannot bring down interest rates. This whittles down growth impulses. A stable price situation is a precursor of secular high growth. 

We need growth because that creates fresh job opportunities. We boast of a demographic dividend, meaning that India’s large population is a driver for development. But that is a dividend only when the rising population is gainfully employed and productive. Alternatively, the human costs are stupendous. After all, economics is for the well being of the people. Growth is not the objective per se. It is the welfare of the people. A large population has to develop the required skills for employment. In light of this, this year’s Survey lays a good deal of emphasis on human resource development.