#dnaEdit: Gradual reforms

The Economic Survey 2014-15, put out in two volumes this time, makes for interesting reading. The first volume provides the general and theoretical framework and the second volume deals with the nuts and bolts of the economy. The language in the first chapter of the first volume strikes a rhetorical note but it is rhetoric that is firmly tethered to facts. The survey speaks of macroeconomic stabilisation, stressing that compared to the economic challenges that other countries face, India has become “the near-cynosure of eager investors.” Facing up to the question of big bang reforms, the survey argues the case that policy boldness in some areas combined with incrementalism would be the best way forward. It takes a polemical stand against the “pitfalls of indiscriminately inclusive and contentiously selective” policies. Yet the survey virtually endorses the principle of “wiping every tear from every eye.” It urges the government to provide a safety net to the vulnerable sections. 

The survey does not accept at face value the new growth figures issued by the Central Statistical Organisation (CSO) based on the new baseline of 2011-12, especially for 2013-14.  It is puzzled over the growth figures for 2013-14, pegged at 6.9 per cent, which showed a decline in savings, investments and in imports. The survey however accepts the GDP growth figure of 7.4 per cent for 2014-15 based on the new series and projects an even more optimistic 8.5 per cent in 2015-16. That projection is premised on several assumptions like … “normal monsoons, better prospects in the world economy that could provide impetus to higher exports for Indian products and services.” 

The Economic Survey provides the general framework within which Finance Minister Arun Jaitley can locate his Budget, as well as articulate the political-economic vision of the nearly-year-old Modi government. It is clear that Jaitley cannot do the radical things prescribed by some of the free market advocates. The main challenge that Jaitley faces is to stay the path of fiscal consolidation and to control governmental expenditure. But he will have to increase investment outlays in infrastructural projects. It has been made clear in the survey that private sector does not have the muscle nor the stomach for the huge investments required to kickstart the economy. The temptation to prune subsidies as a way of reducing expenditure remains. 

One of the critical insights offered by the survey, which is a carry over from the mid-year review, was the problem with the public-private partnership in infrastructural projects. It has been stressed that it is the public sector banks that ended  up with toxic non-performing assets (NPAs) because of the stalled projects. 

Soon after the Survey was tabled, Prime Minister Narendra Modi in his reply to the Motion of Thanks to the President’s Address indicated that he understands the political importance of welfare programmes like the MGNREGA. He assured that his government would not destablise the welfare schemes. It would seem that in his Budget today, the finance minister will opt for incrementalism as advocated in the Economic Survey. Though the free market zealots are sure to be disappointed with the diagnosis and prognosis offered in the Economic Survey because the survey takes a close look at the problems plaguing the economy. The picture is not rosy.