The Economic Survey was awaited with unusual anticipation this year, not just as a strategy document of the Union government in dealing with a suddenly challenging economic environment, but also for the strong analytical underpinning it was conjectured to have acquired under the current chief economic advisor. The signature chapter since last year has been ?micro-foundations?, last year of inclusive growth and this year of macroeconomics, serving to turn the spotlight on the social, political and institutional milieu.
There is a wealth of insight scattered across the document in text boxes, footnotes?a comparison of wheat prices in India and Brazil, the list of measures taken to manage food inflation, the effects of purchasing power parity catch-up and rising prices, interest rate caps on microfinance, and so on.
As anticipated, inflation management is the leitmotif of the survey. Not only are inflation control measures thoroughly discussed, but other aspects like fiscal consolidation, the external environment and growth impulses in general seem to be coloured by the direct and ancillary impacts on inflation. Surprisingly, though, there is almost equal emphasis on the need to balance growth and inflation control, presumably based on the view that growth should not get derailed by an unwarrantedly large tightening of policy impulses.
There are a couple of inferences and observations, however, that need more discussion. The first is the projection of GDP growth of 8.75-9.25% in 2011-12. Given the economic concerns voiced elsewhere in the report and the measures that have been advocated for inflation control, not to mention the deleterious base effects of high growth in 2010-11, the higher growth might be somewhat difficult, if not impossible, to achieve, even if a normal monsoon helps achieve decent agricultural growth. While growth prospects for developed countries and most emerging markets are looking more optimistic as of now, the potential of defaults and fiscal prudence in Europe and wobbly mortgage markets in the US might lead to a slowdown in global growth, particularly if efforts to cool China down are factored in.
This brings us to the other observation, which is the continued emphasis on monetary policy as an instrument of inflation management. While there might be a prima facie case for maintaining the current levels of tightening (although current global and domestic concerns puts even this in question), further tightening is likely to cause severe adverse effects on growth.
The Economic Survey has always been a rich source of compiled information on policy and economic developments, but it has increasingly begun to provide a coherent analytical scaffolding for assessing these developments and, consequently, to focus policy attention on areas of concern. It is difficult to do justice to a large and complex document in just one read.
?The writer is senior vice-president, business and economic research, Axis Bank. The views are the author?s own and do not necessarily reflect those of the institution to which he is affiliated