Economic Survey 2019: CEA’s sage advice to Narendra Modi govt to spend wisely is critical to overcome slowdown phase

One big takeaway from the Economic Survey this time is that it clearly spells out that the Narendra Modi government needs to focus on the quality of expenditure at a time when the economy is slowing and revenues are weak. The survey rightly suggests that the government should make sure that the implementation of populist schemes does not impact the path to fiscal consolidation adversely. This is a very pertinent point at this juncture. A slowing economy could pose fiscal risks to the government in the form of slowing revenues, the Survey warns, adding in this context the government needs to be sure it’s social sector programmes do not damage fiscal prudence. “Resources for now expanded Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) and Ayushmaan Bharat, as well as new initiatives of the new Government, will have to be found without compromising the fiscal deficit target as per the revised glide path (sic),” the Survey says. In the run-up to the 2019 Parliament polls, the BJP’s election manifesto had expanded the scope of some of the ongoing social sector programmes and added a few new ones. The BJP manifesto promised zero-interest loans to farmers for up to Rs one lakh, expanding the Pradhan Mantri Kisan Yojana to all farmers (against those holding cultivable land less than 2 hectares), and pension to small and marginal farmers and small shop owners in the country. Also, there was a promise of Rs 6,000 to all farmers of up to Rs 1 lakh interest-free loans. Besides, pensions were promised for all farmers and small shop owners. This is indeed good news to farmers and low-income groups but, at the same time, fresh fiscal burden on the exchequer. [caption id=“attachment_6934291” align=“alignleft” width=“380”]  Chief Economic Adviser KV Subramanian presents the Economic Survey 2018-19 during a press conference in New Delhi. PTI[/caption] It wouldn’t be an exaggeration to say that the Economic Survey, which was tabled in Parliament today, a day ahead of the Union Budget, has held a mirror to reflect the state of the Indian economy and to warn against the practice of competitive populism. The government should listen to this advice. The Survey acknowledges that economic slowdown is real and hopes an accommodative monetary policy coupled with government measures to boost investments and manufacturing will work towards supporting growth. The Survey calls for a revival in the investment cycle, mainly private investments and unlocking funding sources that have dried up in the recent past. This revival process, the Survey emphasises, should be driven by private investments rather than public spending. Does the Narendra Modi government share the view of its economic advisor and is it prepared to act upon the Survey recommendations? Well, the answer should be out by around noon tomorrow (Friday). Despite the headwinds, the Survey is optimistic on GDP growth—it sees 2018-19 growth at 6.8 percent and government sticking to the fiscal consolidation path to target 3 percent fiscal deficit by fiscal year 2021. One important point is the reduction in the liabilities of central, state governments in relation to the GDP. The Survey says combined liabilities of Centre and States have declined to 67 percent of the GDP as on end-March 2018 from 68.5 percent of the GDP as on end-March 2016. Among the key things markets will watching from Nirmala Sitharaman’s first Budget is: a) ways to overcome the lending squeeze post the NBFC crisis b) divestment of non-core assets and unviable PSUs, and c) a roadmap to revitalise the economy giving a leg-up to the manufacturing sector. In the backdrop of a slowing economy, it is even more critical now for the Narendra Modi government to adopt a cautious approach in spending and find out ways to lure back missing private investments. Privatising the PSU banks itself can free up lot of money which can be then used for infrastructure building and employment generation. The Economic survey has set the theme for the Union Budget that will be unveiled tomorrow (5 July) and has done a good job in painting a realistic picture on the economy.