The economic survey which was tabled in parliament a day ahead of budget 2020-21, expects the economy to rebound strongly and clock a growth rate of 6-6.5 per cent in 2020-21. This, it said, would be possible because of a low statistical base of 5 per cent growth rate in 2019-20. The economy had continuously powered down over the last six quarters from 8.1 per cent in January-March 2018 to 4.5 per cent in July-September 2019.
While Finance Minister Nirmala Sitharaman estimated the fiscal deficit for 2019-20 at 3.3 per cent of the GDP, the Survey gave enough indications this would be breached. “Fiscal deficit target may have to be relaxed for the current year,” it said, pointing to the imperative of boosting domestic demand, which is crucial to revive growth.
For employment generation, the survey called for policies that promote ease of doing business and flexible labour regulations, and foster entrepreneurial activity, especially in the manufacturing sector. It further said that ‘Assemble in India’ for the world should be integrated with ‘Make in India’ to raise India’s export market share to about 3.5 per cent by 2025 and 6 per cent by 2030. In the process, India would be able to create about 40 million jobs by 2025 and about 80 million jobs by 2030.
The survey called for cutting non-committed revenue expenditures like subsidies, but warned against cutting capital expenditure. “…since a considerable proportion of revenue expenditure like interest payments, wages and salaries and pensions is committed. In nature, this leaves a little fiscal headroom for manoeuvre. Therefore, the focus of the government should lie on rationalization of non-committed revenue expenditure like subsidies,” it said. It also advocated aggressive disinvestment to “facilitate creation of fiscal space and improve the efficient allocation of public resources”.
The survey authored by Chief Economic Advisor Krishnamurthy Subramanian, underlined the importance of wealth creation. Stressing that many of the interventions over the years in sectors such as pharmaceuticals and agriculture have been counterproductive, the survey called for strengthening the ‘invisible hand of markets’ along with the ‘hand of trust’ to support markets. “India’s aspiration to become a $5 trillion economy depends critically on strengthening the invisible hand of markets together with the hand of trust that can support markets,” it said.
According to Subramanian, looking at the business cycle phenomena in India, typically the peaks and troughs, and co-relating them with what has happened, “it seems like we have hit the trough therefore there should be uptick in growth. That is what we are Budgeting.”
Listing ten positive factors such as picking up of Nifty India Consumption Index for the first time this year, an upbeat secondary market, higher FDI flows, build-up of demand pressure, positive outlook for rural consumption, rebound of industrial activity, steady improvement in manufacturing, growth in merchandise exports, higher build-up of foreign exchange reserves and positive growth rate of GST revenue collection, the Survey said the uptick in second half of 2019-20 will be mainly due to these factors.
Since the indirect tax collections have been muted in the first eight months of this fiscal, the revenue buoyancy of goods and services tax (GST) would be key to the resource position of both the Central and state governments, it said. The Survey also said that the recommendations of the Fifteenth Finance Commission on tax devolution would have implications for Central government finances.