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The Economic Survey: A take on Arvind Subramanian’s address

Economic Survey
Mr. Arvind Subramanian, Chief Economic Advisor to the Govt. of India, presented the Economic Survey on the first day of the budget session. From the shifting public attitude and perception to the lessons learnt in the past year to gender parity, Subramanian brought to surface his assessment of the economy.

Key Excerpts from Subramanian’s address and what it means for India:

1. The growth story continues: India’s growth in 2017-18 is likely to be 6.75% and expected to grow to 7- 7.5% in 2018-19. India is set to retain the title of fastest-growing economy in the world by 2019. The growth this year will ride on GST, the bankruptcy code, FDI reform, bank recapitalisation and growth in exports. One must recall that the Government has announced a massive Rs.88,000 crores recapitalization of Public Sector Banks with EASE ( Enhanced Access and Service Excellence) at the core of its reform agenda.

2. Factoring in the global oil price: “It is estimated that a $10 per barrel increase in the price of oil reduces growth by 0.2-0.3 percentage points, increases WPI inflation by about 1.7 percentage points and worsens the current account deficit by about $9-10 billion dollars,” the Survey said

3. The impact on revenue: Demonetisation and GST have grown the number of tax payers by 50% in both direct and indirect taxes. Subramanian also pointed out that both these factors had affected the growth earlier, but their effects have now faded.

4. Inflationary pressure: The inflationary pressure would reverse the interest rate cycle and policy rates may start increasing. The average retail inflation has dipped to a 6-year low of 3.3%. The economy transitioned from a period of high and variable inflation to more stable prices.

5. The state of capital markets: Capital markets have benefited from policy actions, low interest rates and poor return in gold and real estate. But he recommended keeping a close watch as the higher the prices go up faster, more likely are they to correct.

6. Universal Basic Income (UBI) to replace anti-poverty schemes: In the next two years, at least one or two States are likely to implement UBI in 1 or 2 years. This is easier to administer than anti-poverty schemes which are full of waste and corruption.

7. The role of Global trade: The 11.3% manufacturing export growth is in line with the world economy. Export demand due to global growth is likely to increase manufacturing linked jobs.

8. Investments and Savings Scenario: As a share of GDP, gross fixed capital formation, decreased to 26.4% in 2017, and savings to 29%. However, Arvind Subramanian hoped there will be a turnaround of the investment cycle. The slowdown in investment and saving needs to be catalysed by public investment and improving ease of doing business.

9. The falling Agriculture income: The Survey indicated a drop in agriculture income by up to 25% owing to climate change. It currently contributes 16% of GDP and 49% of employment. Direct income support should replace subsidies in power and fertilizer. This, of course, should run parallel to the expansion of irrigation.

10. The Social Infrastructure: The Survey predicts that India is poised to grow as one of the leading knowledge economies where education, skill development and health will remain priorities. This should help us transform from being a net consumer of knowledge to net producer of knowledge.

As the Budget day nears, it remains to be seen how many of Arvind’s predictions and hopes are translated into action.

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