Cautious optimism 

Cautious optimism 

Context

The Economic Survey underscores the need to maintain fiscal credibility

The Economic Survey underscores the need to maintain fiscal credibility

The Economic Survey for 2017-18 paints the picture of an economy that gives reason for both optimism and caution.

GDP growth could accelerate

It projects that GDP growth could accelerate to 7-7.5% in 2018-19, from 6.75% in the current fiscal, reinstating India as the world’s fastest-growing major economy

Key factors for positive outlook

According to Chief Economic Adviser Arvind Subramanian, the key factors contributing to the positive prognosis are the reform measures:

I&B Code and GST

Global recovery

Adding to these domestic enablers are the fair winds of a global recovery that have already lent a lift to overseas demand for India’s goods and services.

Rising oil prices need to be taken into account

But capitalising on these favourable factors while remaining vigilant to other macroeconomic threats, including a key risk in the form of persistently high oil prices, would require exemplary economic stewardship.

A classic emerging market ‘sudden stall

• Among the concerns the CEA has flagged is one relating to what the Survey calls “a classic emerging market ‘sudden stall’ induced by sharp corrections to elevated stock prices.” With Indian stock indices continuing to soar to new highs on an almost daily basis, the Survey warns against “sanguineness about its sustainability”.

Priorities need to be reviewed

On the fiscal front, the survey contends that the Centre needs to reappraise its priorities.

Avoid setting overly ambitious targets

The onus, it argues, has to be squarely placed on establishing and maintaining policy credibility. To this end, it argues against “setting overly ambitious targets for consolidation, especially in a pre-election year” that are based on optimistic and unrealistic assumptions.

Modest Consolidation

• Instead, it recommends a “modest consolidation” that would signal a return to the path of calibrated deficit reductions.
• In doing so, it appears that the Survey is signalling that the government may have to retain the elbow room to stabilise the GST, complete the recapitalisation exercise and, most crucially, support agriculture.

Climate change crucial

Devoting an entire chapter to ‘Climate, Climate Change and Agriculture’, the CEA and his team have stressed on the dangers climate change poses to the outlook for farm growth. With the potential to reduce annual agricultural incomes — by as much as 20-25% for unirrigated areas — the Survey calls for a range of mitigation measures including extensive provision of efficient irrigation technologies and a wholesale review of the cereal-centric approach to policy.

Rapid economic expansion

Citing job creation and education as key priorities, the Survey sets out a plan for rapid economic expansion by recommending that policymakers keep their sights trained on strengthening “the only two truly sustainable engines — private investment and exports.”