The storm has passed, now all hands on deck

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SummaryCautiously optimistic survey predicts 5% growth this fiscal, 6.1-6.7% next.

as inflation-indexed bonds, and improving savers’ access to financial products. “Insurance sector could be one of the long-term sources of long-term investment in infrastructure.”

The survey dropped a hint that the stronger government spending control, implemented during August-September, could well be extended to the next fiscal.“Reining in expenditure is likely to remain a theme for FY14,” Rajan said.

He, however, added that “it is better to achieve fiscal consolidation partly through a higher tax-GDP ratio than merely through reduction in the expenditure-to-GDP ratio, in view of large unmet development needs.” This signals today’s Budget could still produce sufficient growth impulses through government spending, despite the announced 4.8% deficit target for 2013-14. The wasteful part of such spending could, however, face the axe. While the Direct Benefit Transfer (DBT) system with the help of the Unique Identification Authority can help in plugging many of the leakages, there is enough scope for expenditure reduction even in social-sector programmes through convergence.”

This year’s Economic Survey dwelt st some length on the “signs of strain” on the balance of payments (imports demand remained resilient because of continued high global crude prices). Although the record-high CAD (4.6% of GDP in the first half of this fiscal) has lately been financed by capital inflows, there has been high dependence on volatile portfolio investments and external commercial borrowings. This would make capital account vulnerable to a “reversal” and sudden stop of capital especially in times of stress. Roughly two-thirds of exports slowdown could be explained by external factors, Rajan said.

Poring over why high inflation has persisted so long, the survey reiterated known assumptions – a “secular decline in expenditure on food relative to that in other commodities and services due to rising income levels,” especially rising rural wages and increase in MSP which inflated input prices. Highlighting the shift in composition of private final consumption expenditure (towards education and healthcare, recreation and away from food), the survey said that this “desirable shift” was the result of an increase in income. “A thrust on (production of) horticulture products and protein-rich items is required for enhancing per capita availability of food items as well as ensuring nutritional security.”

According to the Survey, it is unlikely that support to Indian growth from the global economy would be significant (import bill is tied to oil prices and the country is exposed to the shifts in risk tolerance of international investors). “India cannot take

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