Economic Survey 2014-15: India’s economy will grow at a rate of more than 8 per cent in the 2015-16 fiscal year, while consumer inflation will drop to between 5 and 5.5 per cent, according to the Economic Survey report, which was tabled today at Parliament by Finance Minister Arun Jaitley, a day before Prime Minister Narendra Modi government’s first full Union Budget.
The survey, a report on the state of Indian economy, forecast the economy would grow by 8.1-8.5 per cent under a new calculation method that makes India the world’s top-growing big economy. The report also indicated that India can increase public investments and still hit its borrowing targets, while saying the country needed to adhere to its medium-term fiscal deficit target of 3 percent of gross domestic product.
Noting India had hit an economic sweet spot, the report added the country had room for big bang reforms.
This gives an indication that Finance Minister Arun Jaitley will stick to debt targets in his maiden full-year budget on Saturday.
The Economic Survey prepared by the Finance Ministry’s chief economic adviser Arvind Subramanian on the state of Asia’s third-largest economy was released ahead of Union Budget announcement for 2015/16 that begins on April 1. (Union Budget: All you will need to know)
It said a return to the heady days of double-digit economic growth was expected. “India has reached a sweet spot and that there is a scope for Big Bang reforms now,” the report said.
The survey also indicated that economic growth during 2014-15 may touch 8 per cent on better farm output. The CSO had projected growth at 7.4 per cent for current fiscal.
“Several reforms have been undertaken and more are on the anvil. The introduction of the GST and expanding direct benefit transfers can be game-changers,” it added.
“In the short run, growth will receive a boost from lower oil prices, from likely monetary policy easing facilitated by lower inflation and lower inflationary expectations, and forecast of a normal monsoon,” the Survey said.
The major reforms undertaken by the government include deregulation of diesel prices, direct transfer of cooking gas subsidy, hiking FDI cap in defence and insurance, Ordinance on Coal.
The country’s consumer inflation will also drop to between 5 and 5.5 per cent in 2015-16, opening up space for more monetary easing, the survey report said.
Stating that macro economic situation in the country has improved significantly in the current year, the Survey raised concerns over growth pattern in exports, construction and mining activities. Investment activity, which is slowly picking up, needs to be grounded on a stronger footing, it said.
India must adhere to the medium term fiscal deficit target of 3 per cent of the GDP, it said, adding “this will provide fiscal space to insure against future shocks and also to move closer to the fiscal performance of its emerging peers.
Economic Survey highlights:
3.35 PM: We have to ensure that the subsidies have to be well-targeted and effective: CEA
3.30 PM: The states shall get almost two-thirds of tax revenues collected by India as a whole: CEA
3.30 PM: 2 key lessons from recent fiscal history: 1) control expenditure, 2) improve quality of public expenditure; says CEA
3.25 PM: As India becomes a bigger power in global stage, we need to focus more on the external sector; must learn from China: CEA
3.24 PM: Balance of evidence shows that India is recovering robustly, not surging: CEA
3.22 PM: GST and DBT are going to be two game changing reforms, so is the JAM Trinity: CEA
3.22 PM: There have been several reforms which are cumulatively something potentially important, some game changing reforms too: Subramanian
3.20 PM: Investors does not live by macroeconomic indicators alone, says CEA, making an analogy with a verse from the Bible
3.20 PM: India is an attractive investment destination: CEA
3.23 PM: Reforms, oil prices, monetary policy easing, favourable monsoon are 4 factors which can lead to accelerated growth, says CEA
3.20 PM: A dramatic improvement in the macroeconomic stability, says CEA, citing various macroeconomic indicators
3.18 PM: This gives us a possibility of achieving sustainable double-digit growth: Arvind Subramanian
3.16 PM: This is due to a reform oriented Government and benign external environment: CEA
3.15 PM: The big picture is that India is at a sweet spot, a moment that rarely comes in history, says CEA
3.14 PM: CEA apologises for both inclusions as well as exclusions of elements in the Economic Survey
3.12 PM: Economic Survey is not constrained by politics: CEA Arvind Subramanian
3.10 PM: Economic Survey plays three roles: a repository of facts and data, a technical analysis, and an idea generating document: CEA
3.07 PM: Volume II of Economic Survey is a summary of the current economic situation: CEA Arvind Subramanian
3.05 PM: Volume I of Economic Survey is forward looking and somewhat prescriptive as well: CEA
3.00 PM: This year’s Economic Survey has departed from its predecessors, especially in its structure: CEA Arvind Subramanian
3.00 PM: CEA Arvind Subramanian addresses media on Economic Survey
12.43 PM: Fiscal action cannot wait, it should continue in upcoming year as well, says Survey
12.33 PM: Total stalled projects seen at about 7 percent of GDP, mostly in private sector
12.35 PM: Double digit economic growth trajectory now a possibility
12.37 PM: Expenditure control and expenditure switching to investment key
12.40 PM: There is scope for big bang reforms now
12.30 PM: BSE Sensex trading more than 200 pts higher as govt tables Economic Survey 2014-15
12.25 PM: Current Account Deficit (CAD) to come down to 1% of GDP in 2015-16, says Economic Survey.
12.22 PM: Govt must adhere to medium-term fiscal deficit target of 3 per cent of the country’s gross domestic product (GDP), says Economic Survey.
12.20 PM: Govt will adhere to fiscal deficit target of 4.1% of GDP in 2014-15 despite challenges
12.18 PM: Double digit economic growth trajectory now a possibility
12.15 PM: Govt committed to fiscal consolidation; enhancing revenue generation is a priority: survey
12.15 PM: India can balance short-term imperative of boosting public investment to revitalize growth with fiscal discipline, says Economic Survey.
12.14 PM: Overhauling of subsidy regime would pave the way for expenditure rationalisation
12.14 PM: Food subsidy bill rises 20 pc in April-January 2014-15 at Rs 1.07 lakh cr, says Economic Survey.
12.12 PM: Foodgrain output in 2014-15 at 257.07 mn tons; will exceed the average production of last 5 years by 8.5 mn tons
12.12 PM: There’s political mandate for reform & benign external env now. Forex reserves going up
#Budget2015 #EconomicSurvey: there’s political mandate for reform & benign external env now. Forex reserves going up pic.twitter.com/VNRF1o41ek
— PIB India (@PIB_India) February 27, 2015
12.10 PM: Inflation showing declining trend in 2014/15 as a result of government measures and falling international oil prices, says Survey
12.10 PM:Inflation likely to be below central bank target by 0.5 – 1 percentage point
12.10 PM: Lower inflation opens up space for more monetary policy easing
12.10 PM: Govt and the RBI need to conclude monetary framework pact to consolidate gains in inflation control
12.08 PM: Growth at market prices seen between 8.1-8.5 pct in 2015/16 on basis of new GDP calculation formula
12 PM: FM Arun Jaitley tables Economic Survey 2015-16 report at Parliament
12 PM: Gold imports into India, the world’s top consumer, jumped 55 per cent to 57.2 tonnes in January, ahead of an expected cut in the import duty in Saturday’s Union Budget.
11.50 AM: BSS Sensex trading over 240 points higher, ahead of Economic Survey 2015; NSE Nifty up 60 points
10 AM: Economic Survey to be released around noon
1/2 #EconomicSurvey released Feb. 27. Will be uploaded at http://t.co/VS3x2LMfaA (@FinMinIndia) after tabled in Parliament around noon — arvind subramanian (@arvindsubraman) February 26, 2015
10.05 AM: Finance Minister Arun Jaitley to table will table a report on state of Indian economy today
Seven months since it presented the Union Budget 2014-15, the Centre has fulfilled a number of announcements made back then, but several proposals such as smart cities, Skill India and a special institution to support public private partnerships remain on the drawing board. But hopes are high among corporates and common man for tax cuts, tax rationalisation, ect.
Railways Minister Suresh Prabhu on Thursday had presented a sober Rail Budget 2015, not announcing new trains or factories, and instead laying the track for increasing carrying capacity by substantially stepping up investment in infrastructure.
ECONOMIC SURVEY 2015-16: VIEWs
COMMENTARY
GANTI MURTHY, HEAD OF FIXED INCOME, IDBI ASSET MANAGEMENT, MUMBAI
“The economic survey is the government’s statement of intent. We still need to see how they manage the revenue and expenditure sides in the budget tomorrow.
“But the good thing is that they have confirmed their intent to stick to the 4.1 percent fiscal deficit target for this fiscal (year), and more importantly they have come out with the 3 percent fiscal deficit target for the medium term.
“But what’s not clear is how they define medium term, we will have to watch out the budget for clues on that.
“The positive for the market is that there is now a clear scope for big bang reforms, with both WPI (wholesale price inflation) and CPI (consumer price inflation) expected to stay under the central bank’s target”
S. RAMASAMY, CHIEF INVESTMENT OFFICER, LIC NOMURA MUTUAL FUND, MUMBAI
“The survey shows positive numbers on fiscal deficit and GDP. If these targets are confirmed in the budget, expect a rally in bonds and equities.
“Given where crude is, I don’t see why RBI can’t cut rates. If budget sticks with these numbers of economic survey then I would not be surprised to see a rate cut by the Reserve Bank of India on Monday.”
SHUBHADA RAO, CHIEF ECONOMIST, YES BANK, MUMBAI
“It basically says the economy is now poised to take off, with key enablers getting into place.
“Triggering an investment-led growth environment should augur well for India’s growth trajectory to get on to a higher path.
“The government is not going to be easing its resolve to maintain fiscal consolidation. We anticipate that given the comfort on inflation, measures to boost investment are likely to concretely come on board.
“We expect the Union Budget to maintain a similar underlying theme. We are looking at fiscal deficit projection of 3.6 percent for FY16.
COMPARISON: Following are highlights of last year’s Economic Survey report
FISCAL DEFICIT
* India needs sharp fiscal correction
* Fiscal situation of the central government is worse than it appears
* Need for subsidy reforms for fiscal consolidation
* Recommends raising tax-to-GDP ratio for fiscal consolidation
* Shortfall in revenues can be contained through better mobilisation and reforms
* External debt remains within manageable limits
GROWTH
* GDP growth seen at 5.4-5.9 pct in 2014/15
* Economic growth of 7-8 pct not seen before 2016/17
* Downward risk to economic growth due to poor monsoon, external factors
INFLATION
* Government needs to move towards low and stable inflation through fiscal consolidation
* Wholesale Price Index (WPI)inflation expected to moderate by end-2014
* Consumer Price Index (CPI) inflation showing signs of moderation
* Needs to create a competitive national market for food
BALANCE OF PAYMENTS
* Improvement in balance of payments position during late 2013-14 was swift thanks to import restrictions and economic slowdown
* Need to adjust to advanced economies’ event exit from accommodative monetary policy stance
SUBSIDIES
* Rationalization of subsidies such as fertilizer and food essential
* Need to shift subsidy programme from price subsidies to income support
TAXATION
* Government needs to move towards simple tax regime, fewer tax exemptions, single rate of goods and services tax (GST)
* GST to play vital role in indirect tax reform
FOREX MARKET
* Intervention in forex market by Reserve Bank of India is behind accumulation of reserves “generally”
(With agency inputs)
