Economic Survey India

Economic Survey-An Overview

 

The Survey calls for staying on the path of indicated fiscal consolidation. This, it says, is critical to sustaining the desirable macroeconomic outcomes not only in terms of higher growth in real GDP and lower inflation, but also in easing the financing of the widening current account deficit (CAD),for which India’s sovereign credit rating is important

 

Highlights of India Economic Survey 2012-13

 

-       Economic growth pegged at 6.1-6.7 percent in 2013-14

-       March 2013 inflation estimated at 6.2-6.6 per cent

-       Priority will be to rein in high inflation

-       FDI in retail to pave the way for investment in new technology and marketing of agriculture produce

-       Survey calls for widening of tax base and prioritising expenditure to bridge fiscal deficit 

-       Calls for curbing gold imports to contain current account deficit

-       Aadhaar-based direct cash transfer scheme can help plug leakages  in subsidies

-       With subsidies bill increasing, danger of missing fiscal targets is real in FY13

-       Survey pitches for hike in prices of diesel and LPG to cut subsidy burden.

-       Foreign Exchange reserves remains steady at $295.6 billion at December, 2012-end

-       At present, overall energy deficit is about 8.6 percent and peak short of power is about 9 per cent.

-       Infrastructure bottlenecks affecting industrial sector performance

-       Prospects for world trade as well as of India are still

-       Pitches for further opening of sectors for FDI

 

Generally seen as anticipating the union budget, the economic survey for 2012-13 tabled in parliament on February 27 on the eve of the central budget 2013-14, expectedly pitched for further reforms, cut in subsidies, definitive action on eliminating barriers to investment and employment generation.  
 

Not surprisingly, the budget proposals the following day largely reflected the mood seen in the survey.   

Against the backdrop of a steady decline in growth rate over the years, the survey has however gone optimistic to forecast a GDP growth of 6.1 to 6.7 percent for fiscal 2013-14. It is also hopeful of controlling inflation, projecting a decline to stay between 6.2 and 6.6 percent. 

Injecting Hope 

The survey clearly sought to inject hope amid a bleak scenario that saw a plunge in growth to around 5 percent and 6.2 percent in the previous two fiscals (2012- 13, 2011-12) from 9.3 percent and 8.6 percent in the two fiscals before that (2010-11, 2009-10), triggered in the main by the global slowdown since September 2008. 

“The slowdown is a wake-up call for increasing the pace of actions and reforms,” the survey declared, giving, however, credit to the economic managers for being able to steer to reasonable safety from rough waters. Attributing this feat to “good policies and strong reforms programme”, the survey expressed optimism that the economy will return stronger.  

The survey also pushed for fast action on the ground after the opening up of the retail trade to foreign direct investment and said this will not just pave the way for flow of investment in new technology, but also for marketing of farm produce in India. “Fast agricultural growth remains vital for jobs, incomes and food security.”  

Introducing a special chapter on employment, the survey says the future holds promise for India if it seizes the demographic dividend, with nearly half of the additions to the labour force till 2030 expected in the 30-49 age group. “Because good jobs are both the pathway to growth as well as the best form of inclusion, India has to think of ways of enabling their creation,” says the survey, adding new jobs are currently being added mainly in informal and low productivity sectors. 

Containing subsidies 

The Survey emphasises that efforts will have to be made to contain subsidies through better targeting and for reducing leakages involved in their delivery. One such initiative is direct benefit transfer (DBT) scheme. Government has been calibrating pricing policies to addressing the issue of burgeoning fertiliser subsidy and underlined the need for according priority to food subsidy in view of the under consumption of basic food by the poor and the extant of malnutrition. 

Another consequence of slowdown has been lower than targeted tax and non-tax revenues. With the subsidies bill, particularly that of petroleum products, increasing, and the danger that fiscal targets would be breached substantially became very real in the current year, the Survey said. “The situation warranted urgent steps to reduce government spending so as to contain inflation.” Also required were steps to facilitate corporate and infrastructure investment so as to ease supply. 

CAD Concern 

The survey expresses concern over the high current account deficit due to a higher share of imports vis a vis exports and says this in the short run must be corrected by cutting oil and gold imports with market-determined prices.  

This, the survey argues, is all the more necessary, since the flow of invisibles -such as money in the form of remittances by Indians abroad and software earnings – are not particularly sufficient to cut current account deficit, now at 4 percent of the GDP.

On the controversial issue of land acquisition, the survey seeks a balance between the need for economic growth and the costs imposed on the displaced with proper mapping of land, easier means to facilitate leasing and transparent compensation policy.  

On foreign direct investment, the survey notes that India, with a rank of four in the global restrictiveness index, fares better than China, ranked first. Yet, there is scope to reverse the moderation seen last year in inflows of overseas capital. Accordingly, it calls for a review in increasing the foreign investment cap in a host of areas, notably public sector banks, insurance and defence production as they promise new technology and practices and such capital are better than portfolio investment. 

Farm growth 

With agriculture growth rate falling short of the 4 percent target in last five years, the sector needs urgent reforms to boost crop yields and private investment in infrastructure so as to motivate farmers and feed the growing population, the survey said. The farm sector achieved 3.6 percent growth during the 11th Five year Plan (2007-12), falling short of the 4 percent growth target, although it was much higher than growth of 2.5 and 2.4 percent during 9th and 10th Plans, it added.  

The agriculture sector is broadly a story of success in the past few years. “Yet, India is at a juncture where further reforms are urgently required to achieve greater efficiency and productivity in agriculture for sustaining growth.” 

Fighting Inflation 

The survey points out that the priority for the Government will be to fight high inflation by reducing the fiscal impetus to demand as well as by focusing on incentivising food production through measures other than price supports. But unlike the previous year, when food inflation was mainly driven by higher protein food prices, this year the pressure has been coming mainly from cereals. 

On the Balance of Payments and External Position, the survey highlights that with net exports declining, India’s balance of payments has come under pressure. Moreover, in the current fiscal, foreign exchange reserves have fluctuated between US$ 286 billion and US$ 295.6 billion, while the rupee remained volatile in the range of Rs 53.02 to Rs 54.78 per US dollar during October 2012 to January 2013. 

Focus on Jobs, Development 

The survey has a special chapter focusing on jobs. The future holds promise for India provided we can seize the “demographic dividend” as nearly half the additions to the Indian labour force over the period 2011-30 will be in the age group 30-49. India is creating jobs in industry but mainly in low productivity construction and not enough formal jobs in manufacturing, which typically are higher productivity. The high productivity service sector is also not creating enough jobs. As the number of people looking for jobs rises, both because of the population dividend and because share of agriculture shrinks, these vulnerabilities will become important.  

India with its focus on inclusive development and timely interventions has been able to ward off the ills of global economic and financial crisis better than many other countries. The global recession and the slow down have squeezed the fiscal space for most countries. However, India’s social sector spending has seen a continuous increase. According to Survey, the country continues to work on XIIth Plan initiative for “Faster, More Inclusive and More Sustainable Growth” and strives for targeted policy for the poor with minimal leakages. To achieve greater inclusive development, the share of Central Govt. Expenditure (Plan and Non-Plan) on Social Service and Rural Development increased from 14.8 percent in 2007-08 to 17.4 percent in 2012- 13(BE) 2007-08 to 25.1 percent in 2012-13. 

UIAI, Bharat Nirman, Growth Indicators 

Survey says that under Phase 2 of Unique Identification Authority of India (UIAI), 40 crore residents are to be enrolled before end 2014. As of December 2012, 25 crores Aadhaars had been generated and approximately 20.00 crore aadhaars letters has been dispatched. Pilots on Direct benefit transfers (DBT) have also been successfully conducted in the States of Jharkhand, Tripura and Maharashra to transfer monetary benefits related to social welfare schemes. Survey says that about 10.5 crore children benefitted under the mid-day meals programme during 2011-12. 

According to Survey, through Bharat Nirman Programme, the country strives to achieve a higher degree of rural- urban integration and an even pattern of growth and opportunities for the poor and disadvantaged. During 2012-13 as against physical target of 30.10 lakhs houses, 25.35 lakhs houses were sanctioned and 13.88 lakhs had been constructed as on 31st December, 2012. The Unit assistance provided under the Indira Awas Yojana (IAY) is being revised w.e.f 1st April, 2013 from Rs.45,000 to Rs.70,000/ in plain areas and from Rs.48,500/ to Rs.75,000/ in hilly/ difficult areas/ integrated action plan districts. 82 left wing extremists affected districts have been made eligible for this higher rate of unit assistance. Under the Pradhan Mantri Gram Sarak Yojna (PMGSY), a sum of Rs.l02658 crore to have been released to the States and about Rs. 96939 crore spent by December, 2012. A total of 3,63,652 Km. road length connecting nearly 90,000 habitations has been completed. About 74 percent of rural habitations are fully covered under the provision of the safe drinking water.  

The Survey finds that while some states have performed well in terms of growth indicators, they have performed poorly in terms of poverty, rural-urban disparity, unemployment, education, health and financial inclusion. According to Survey, Bihar has the highest decadal (2001-11) growth rate of population(25 percent ) while Kerala has the lowest rate (4.9 percent ). In 2011, Kerala has the highest sex ratio (1084), while Haryana is at the bottom (877). In terms of growth Bihar is the best performer (16.7 percent), Rajasthan is the worst (5.4 percent). Highest Poverty Head Count Ratio (HCR) exists in Bihar (53.5) while lowest is in Himachal Pradesh (9.5 percent). The unemployment rate is the lowest in Gujarat (18) and highest in Kerala and Bihar (73) in Urban areas and the lowest in Rajasthan (4) and again highest in Kerala (75) in rural areas. Kerala is the best performer in terms of life expectancy at birth whereas Assam is the worst performer in both males and females. Based on above findings, the Surveys calls for a rethink on the criteria used for devolution of funds to states. 

Highest rise in Share of Services 

A comparison of the services performance of the top 15 countries for the 11 year period from 2001 to 2011 shows that the increase in share of services in GDP is the highest for India with 8.1 percentage points. These 15 top countries include major developed countries along with Brazil, Russia, India and China. While China’s highest services compound annual growth rate (CAGR) stood at 11.1 percent, India’s very high CAGR of 9.2 percent was second highest and also accompanied by highest change in its share. This is a reflection of the fact that India’s growth has been powered mainly by the services sector. 

Benefits of Market Diversification 

There has been significant market diversification in India’s trade. Region wise, India’s exports to Europe and America have declined to 18.7 percent and 19.5 percent respectively in 2012-13 from 25.9 percent and 24.7 percent in 2000-01. On the other hand export to Asia and Africa rose to 50.4 percent and 9.6 percent respectively from 37.4 percent and 5.3 percent respectively during the same period. There was a noticeable rise in the share of West Asia–GCC (Gulf Cooperation Council) countries from 14.9 percent in 2011-12 to 17.7 percent in 2012-13 (April- November) said the Survey. However, the Survey noted that “in terms of product diversification a lot more needs to be done.” 

More than 3.7 Lakh Villages Electrified 

The Survey notes that more than 3.79 lakh villages across the country have been provided electricity through the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY). The rural electrification scheme launched in April, 2005 has provided electricity to 1,06,116 unelectrified villages and intensive electrification in 2,73,328 partially electrified villages. It has also provided free electricity connections to 202.6 lakh below poverty line (BPL) households as on 30th November, 2012. In addition, capital subsidy of Rs. 26,664 crore has been utilised under the scheme so far. 

Fiscal Outcome Indicates Improvement in 2012-13 

The Survey emphasises that the fiscal outcome of Central Government in 2012-13 so far indicates a significant improvement over 2011-12. The fiscal position of the States has continued to progress with fiscal deficit budgeted at 2.1 percent of gross domestic product (GDP). 

The fiscal outcome of 2011-12 was affected by macro economic developments of slowdown in growth, higher global crude oil prices and sluggish financial market conditions for effecting the budgeted disinvestments programme.  

The Survey calls for staying on the path of indicated fiscal consolidation. This, it says, is critical to sustaining the desirable macro-economic outcomes not only in terms of higher growth in real GDP and lower inflation, but also in easing the financing of the widening current account deficit (CAD), for which India’s sovereign credit rating is important. 

In sum, the survey has displayed cautious optimism about India’s overall growth, stressing that any growth is meaningless if it is not inclusive. Hence it lays emphasis on social spending to benefit the poor and socially disadvantaged sections, while advocating restraint on general consumption by the more fortunate. It’s a good recipe for inclusive growth and its success, no doubt, depends on honest implementation.

 

R C Rajamani The author is Editorial Consultant, The Statesman, New Delhi.