The Budget must place maximum emphasis on raising resources by plugging non-productive subsidies and utilise the same for investment in infrastructure, irrigation, communi-cation and transport
The new series estimates of national income, consumption expenditure, saving and capital formation with base year 2011-12 have brought out a few interesting issues with far reaching implications on the outlook projections for Indian industry and the economy as a whole.
Based on the conceptual changes as recommended by international guidelines and change of the base year from 2004-05 to 2011-12 in order to incorporate the change dynamics reflected by Indian economy, GDP at market prices in 2013-14 has been estimated as 6.9% and the advance estimates for 2014-15 place GDP for the current year at 7.4 %.
This implies the outlook projection for Indian economy for 2015 and beyond by IMF, World Bank and all other related agencies would call for a revision. Second, if GDP estimates are revised upwards, the behaviour of the various economic parameters supporting the growth also needs a relook. There are some reports that higher estimates of growth do not necessarily imply that Indian economy has performed better than what was measured till now. A plausible answer can be found after the past series also get revised subsequently with base year 2011-12.
Although the new series has changed only marginally the critical ratios like trends in tax, public expenditures etc, the share of industry in GDP has gone up from 26.1% in 2013-14 to 31.7% and 31.2% in 2014-15. Correspondingly manufacturing share has gone up to 18% and 17.9% during these two years, a clear gain of 3%. This would make the goal of National Manufacturing Competitiveness Council easier to take the current ratio to 25% by 2022. Correspondingly the share of service sector in GDP that reached 60% in 2013-14 has dropped to 52% in 2014-15 as per the new series.
The cause of worry, however, remains to be the Gross Fixed Capital Formation as a percentage of GDP at current prices, which was 30.6% in 2011-12, is now estimated to be 33.6%. It was 30.4% measured earlier for 2012-13 and now revised to 31.4%, 28.3% for 2013-14 now goes up to 29.7%, but the ratio goes down to 28.6% in 2014-15 as per the advance estimates. This declining trend in fixed capital formation perhaps explains the subdued status of the commodity sector.
Significantly, India’s GDP growth in 2015 on the basis of the new series may exceed China’s growth rate of 6.8% as projected by IMF. In addition, GDP growth of 7-7.5% for the country may even prompt the RBI not to relax repo rate anymore and instead target inflation. The Budget must, therefore, place maximum emphasis on raising resources by plugging non-productive subsidies and utilise the same for investment in infrastructure, irrigation, communication and transport.
Hopefully, the ongoing e-auction for the mining sector is going to fetch investible resources in the hands of the state governments for spending on health, education and housing. A good number of small ticket reforms is likely to be announced in the Budget that would substantially improve the ‘doing the business’ scenario in the country and pave the way for smooth flow of private corporate investment, FDI and FII in manufacturing, real estate, retail, defence and ports.
In a way, the release of the new National Accounts series would facilitate the policy prescriptions by the government and uplift the subdued business scenario to enhance the flow of investment in the economy.
The author is DG, Institute of Steel Growth and Development. Views expressed are personal.