A responsible Budget 2014? Economic survey hints at cut in wasteful govt spending

Signalling a fiscally responsible budget for the current financial year, finance minister Arun Jaitley maiden economic survey today pegged this year’s GDP growth at 5.4 to 5.9 percent, riding high on improvements in current account and fiscal deficits.

The growth estimate is higher than the last two years’ sub-5 percent growth.

The survey has also recommended that the government should also enact a Fiscal Responsibility and Budget Management Act with “teeth”, which would mean more control over wasteful spending and focus on fiscal consolidation.

The survey also sought to lay a formal monetary policy target for the retail inflation.

The focus on fiscal prudence and inflation in the economic survey indicates that the government is on right track by targeting two of the major problems the economy is facing.

Samiran Chakraborty of Standard Chartered Bank told CNBC-TV18 that the FRBM and inflation are getting acknowledged in the survey documents is very positive for the economy. He, however, said that it is the implementation that matters and hoped that the budget tomorrow will announce some steps towards this.

The growth slowdown in the last two years was broad based, affecting in particular the industry sector, the survey said. Inflation too declined during this period, but continued to be above the comfort zone, owing primarily to the elevated level of food inflation, it said.

Jaitley sees moderation in inflation which will ease the monetary policy stance of the RBI allowing it to cut rates and reviving the confidence of investors.

“…With the global economy expected to recover moderately, particularly on account of performance in some advanced economies, the economy can look forward to better growth prospects in 2014-15 and beyond,” the survey said.

The survey pointed claimed the priority of the government will be the revival of business sentiment and restarting the investment cycle.

“Aggregate demand (measured in terms of GDP at market prices) registered a growth of 5.0 per cent in 2013-14 vis–vis 4.7 per cent in 2012-13 primarily due to improvement in net exports. The decline in the rate of gross fixed capital formation in 2013-14 reflects subdued business sentiments,” it said.

The survey lists the priorities for growth revival as follows: streamlining implementation procedures to restart the investment cycle; simplification of tax policy, repeal of archaic laws governing market access, expansion and entry/exit of firms and revamp of the dispute resolution mechanism for commercial disputes to lend greater predictability to policy; boost to physical infrastructure; and, reforms that enhance productivity in agriculture, etc. are crucial.