Highlights of Eco Survey: Non-farm jobs, fiscal correction key for revival

Finance Minister Arun Jaitley today tabled the Economic Survey for the year 2013-2014 in Parliament, which stated that the Indian economy is likely to grow between 5.4 and 5.9% in financial year 2015.

“Economy can look forward to better growth prospects in FY15,” the survey said, adding thatmoderation in inflation would ease the monetary policy stance and revive the confidence of investors. It however, cautioned that a poor monsoon and investment climate may pose downside risks to the economy.

Given that the government is facing a financial crunch, the Economic Survey emphasised the need for ‘fresh thinking’ on a responsible fiscal policy framework. “The fiscal situation of the central government is worse than it appears, given the acceleration of inflation from 2006 to 2014,” the survey said.

The survey calls for putting public finances on the sustainable path through fiscal correction, a new Fiscal Responsibility and Budget Management (FRBM) Act with teeth, better accounting practices, greater transparency and improved budgetary management. It argues that improvements on both tax and expenditure are needed to obtain high quality fiscal adjustment.

It has also called for a tax regime that is simple, predictable and stable consisting of a single-rate goods and services tax (GST), fewer exemptions in direct taxes, and a transformation of tax administration.

It has spelled out three major reforms for government’s expenditure: shifting subsidy programmes away from price subsidies to income support, a change in the focus of government spending towards provision of public goods, and improvement in systems of accountability. For example, a focus on health and education , rather than inputs and expenditure must be a priority.

The Survey also discusses the need for revamping some o social sector schemes such as MNREGA.“Leveraging modern technology for efficient delivery of programmes, removing multiple layers of governance, simplifying procedures, and greater participatory role by beneficiaries can help in creating a better delivery mechanism,” the survey noted.

Stressing on the need for fiscal consolidation, the survey said that subsidy reforms are essential to keep the fiscal house in order. “Raising the tax-GDP ratio is essential for fiscal consolidation,” the survey added.

Here are the highlights:

1.FY15 GDP growth likely estimated at 5.4-5.9 percent. Growth likely to be on the lower side of estimates.

2.Inflation limits scope for RBI to cut rates. Inflation has eased but still above comfort level.Government needs to move towards low and stable inflation through fiscal consolidation

3. Subsidy reforms essential for fiscal consolidation

4.See improvement in manufacturing, Balance of Payments in FY15 with current account deficit at US $ 32.4 billion as against $ 88.2 billion in 2012-13. India’s foreign exchange reserves increased from $ 292.0 billion at end March 2013 to $ 304.2 billion at end march 2014. The external debt has remained within manageable limits due to the external debt management policy with prudential restrictions on debt varieties of capital inflows

5. Raising tax to GDP ratio key for essential for fiscal consolidation

6.Need new Fiscal Responsibility and Budget Management Act ‘with teeth’

7.Monetary policy essential for controlling inflation in long run

8.Expect Industrial policy recovery to continue

9.Capital controls not supporting globalised economy

10. Govt needs to review nutrient-based fertiliser based subsidy

11.India requires $1 trillion investment in infrastructure over 5 years.From the infrastructure development perspective, while important issues like delays in regulatory approvals, problems in land acquisition & rehabilitation, environmental clearances, etc. need immediate attention, time overruns in the implementation of projects continue to be one of the main reasons for underachievement in many of the infrastructure sectors.

12.RBI has indentified five sectors – infrastructure, iron and steel, textiles, aviation and mining as the stressed sectors.Public sector banks have high exposures to the ‘industry’ sector in general and to such ‘stressed’ sectors in particular.

13. Improved twin deficit may lead to higher but gradual growth

14.WPI inflation expected to moderate by end 2014

15.Downward risk to economic growth due to poor monsoon, external factors

16.Sustaining improvement in the Balance-of-Position in the medium term is a challenge butBoP position improved ‘dramatically’ in FY14

17.Non-tax revenue during 2013-14 has gone up to Rs 199233 crore, showing a significant increase of about 45% compared to the previous year, chiefly on account of dividends and profits and interest receipts.

18.With the shortfall in tax revenues and disinvestment receipts, and higher than budgeted subsidies, interest, and pension payments, the fiscal consolidation was mainly achieved through a reduction in grants for creation of capital assets and capital expenditure

19.In financial sector, leverage by infrastructure firms and deteriorating asset quality of banking sector emerged as a major concerns. Gross NPAs of banks increased from 2.36 percent in March 2011 to 4.40 percent of total credit advanced in December 2013 with infrastructure, iron and steel, textiles, aviation and mining emerging as the stressed sectors.

20.Reforms needed for long term-growth prospects on 3 fronts- low and stable inflation regime, tax and expenditure reform and regulatory framework.

21Survey suggests removal of restriction on farmers to buy, sell and store their produce to customers across the country and the world.Government needs to eventually move towards income support for farmers and poor households

22The next wave of infrastructure financing will require a capable bond market.

23.Major sector-wise performance of core industries and infrastructure services during 2013-14 shows a mixed trend. While the growth in production of power and fertilizers was comparatively higher than in 2012-13, coal, steel, cement, and refinery production posted comparatively lower growth. Crude oil and natural gas production declined during 2013-14.