Expert Speak by Shubhada Rao, Chief Economist, Yes Bank

Set in the backdrop of improving macro-economic fundamentals and supporting policy environment, the annual Economic Survey for FY15 set out a candid assessment of the economy. The survey has a distinctively fresh character in its policy assessment.

In my opinion, there are three important takeaways worth highlighting.

1. Economic growth is non negotiable

The survey brings a new and unique flavour as it has been woven around the broad theme of creating opportunity and reducing vulnerability. It reckons that economic growth is the bedrock for economic development, the absence of which shrinks welfare possibilities across the income spectrum. It rightfully underscores the futility of choice between growth and distribution and focuses on “how best” direct government support can complement broader economic well being.

2. Big Bang makes way for Persistence and Creative Incrementalism

In the frenzy for quick big bang reforms, expectations from the upcoming Budget are running sky high. However, the survey anchors expectations by pointing out that one needs to re-assess if the economy really needs big bang reforms in the absence of a crisis-like situation. With policymaking becoming vibrant and dispersed, the likelihood of a persistent, encompassing, and calibrated gradualism approach towards reforms has emerged strongly. Nevertheless, with a strong political mandate on its side, the government would still be able to find some room to take bold steps in a few critical areas. This boldness in areas where policy levers can be more easily pulled combined with incrementalism in other areas can cumulate over time to big bang reforms.

3. Focus area for sustainable growth

i) Highlighting the inability of the private sector to lead the recovery owing to impaired balance sheets, the survey suggests that pro-active role of public investment through high growth multiplying sectors such as railways would pave way for improved economic growth in the short-term. As such, it pegs FY16 growth at 8.1-8.5%, higher than 7.4% for the current fiscal. Importantly, whilst advocating enhancement in public investment in the short term, the survey reaffirms its commitment towards medium-term fiscal consolidation trajectory of 3%. Encouragingly, it calls for leveraging technology and improving reach to unbanked areas. In this context, ‘JAM Number Trinity- Jan Dhan Yojana Aadhaar and Mobile Numbers’ have been proposed to augment efficiency of subsidy targeting and curbing of leakages through direct benefit transfer.

ii) On the manufacturing front, the survey makes a special mention for removing negative protectionism (eliminating exemptions on CVD and SAD), fixing infrastructure bottlenecks, and implementing structural tax reforms like GST on a priority basis. What is noteworthy is that the survey highlights the importance of maintaining efficiency in services and skilling of labour within the ambitious ambit of Make in India.

iii) Citing the current model of marketing of agriculture commodities through APMC as non-transparent and a source of political manoeuvring, the survey re-ignites the debate for the creation of a national common market for agriculture products. Creation of a common market can be hailed as one of the key reforms imperative to create the spirit of competition, remove bottlenecks for free trade and allow private players to viably compete with state players.

iv) In addition, the survey focuses on banking sector constraints in financing a higher trajectory of growth and recommends a way out of the “double financial repression” by adopting the 4D strategy of deregulation, diversification, differentiation, and disinter.

Survey instills confidence

With its holistic treatment, the FY15 Economic Survey instills confidence on the progress made by the Indian economy since its nadir, two years ago. With a strong political mandate and a fortuitously soft global commodity price environment on its side, India is in the process of evolving into a Solitary Spark from a Fragile Five in the emerging market space.