The Economic Survey 2016 outlines many of the imperatives that are well known and emphasizes on investment in human capital. Both aspects of human capital – education and health are critical for reaping the demographic dividend, and if this is the governments thought process, then hopefully FY17 budget will devote more resources in these areas.
An area that has been plaguing the economy lately is also revival of the investment cycle. Here public investment is expected to play the role of a catalyst. If this is the case, then will the government be able to cap the fiscal deficit at 3.9% of GDP, despite lower nominal GDP? Well the economic survey thinks so and is pegging its hope on a lower subsidy outgo on account of oil and a healthy growth in excise duty collection. However, in view of a substantial shortfall in the disinvestment revenue and higher subsidy outgo on account of food and fertiliser subsidy, this looks unlikely unless the government cuts the capital/plan expenditure, as has been the case in the past. If this is done, then this will have adverse implications on GDP growth in the medium term.
The GDP growth projection of 7.0%-7.5% for FY17 suggests that the economic survey is not confident on the economy. Or is it a more realistic assessment of the growth potential in FY17? We do not know. But one thing is clear, by projecting a relatively modest GDP growth for FY17, the economic survey is not expecting flagship programmes of the government namely make in India, digital India, start up India etc to add anything incremental to the economy in FY17. Neither is the eco survey expecting a push to consumption from the implementation of 7th pay commission.
Besides growth, the other big challenge has been to reorient the growth process to create more employment opportunities for the Indian youth. The economic survey states that the labour force participation rate is higher in rural than urban areas. It also notes that unemployment rate in rural areas is 4.7% and in urban areas is 5.5%. These statistics however do not reveal the extent of underemployment or disguised employment. Moreover, the rate at which youth are entering the labour force every year the situation of employment is only getting worse. The job reservation related protest/agitation in Gujrat and Haryana is indicative of this fact. Therefore while skilling India via schemes like Pradhan Mantri Kaushal Vikas Yojana, Deen Dayal Upadhyaya Grameen Kaushalya Yojana or National Rural Livelihood Mission and making youths employable is an important step, it will be more important to create ready employment to reduce the heightened rural distress due to two consecutive monsoon failures. Hopefully FY17 budget will acknowledge this and use the Mahatma Gandhi National Rural Employment Guarantee Scheme to do so.
The share of horticulture output in agriculture increased to 33%, however traditional agriculture continues to be the mainstay. A number of schemes to reinvigorate agriculture such as soil health card scheme, agri-tech infrastructure fund, a technology driven protein revolution, a price stabilisation fund, and Prime Minister’s irrigation scheme with a special focus on micro-irrigation and watershed development are at various stages of implementation, but the government cannot relax on this front. We expect the government to lay out a road map/ time bound implementation path, rather than introduce additional schemes.
By Sunil Kumar Sinha
Principal Economist and Director – Public Finance, India Ratings &Research