New Delhi | Laying the pitch for the Modi government’s first full-year budget, the Economic Survey today called for ‘Big Bang’ reforms, raising public investments to drive economic growth and improving business environment by making regulation and taxes less onerous.
The survey forecasts that the economy will grow by 8.1-8.5 per cent in 2015-16, as compared to 7.4 per cent in the current fiscal, and by 8-10 per cent in years thereafter, under a new calculation method.
India has reached a sweet spot and… there is scope for Big Bang reforms now, it said, adding a political mandate for reforms and a benign external environment have created a historic moment of opportunity to propel India onto a double- digit growth trajectory.
Finance Minister Arun Jaitley, who laid a copy of the Survey in the Lok Sabha, must in his budget tomorrow continue the process of fiscal consolidation, embedding actions in a medium-term framework, it said.
Decisive shifts in policies controlled by the Centre combined with a persistent, encompassing, and creative incrementalism in other areas could cumulate to Big Bang reforms, the Survey said.
The Budget should aim at creating a competitive, predictable, clean and exemption-light tax policy regime that will lower the cost of capital, incentivise savings and facilitate tax payer compliance.
Outlining the reforms needed to boost investment and growth, it listed improvements to tax administration, easing the cost of doing business, labour and land law reforms, rationalising subsidies, creating a competitive, predictable, and clean tax policy environment and accelerating disinvestment.
Talking to reporters, Chief Economic Adviser Arvind Subramanian, the author of the Economic Survey, said: We are going to have moderated inflation, and shall overshoot the RBI’s growth forecast.
Stating that private investment must remain the primary engine of long-run growth, the pre-Budget document, however, said in the interim public investment, especially in the railways, will have an important role to play in revival of growth and deepening physical connectivity.
It termed as game-changing the implementation of the GST and moving to technology enabled direct benefit transfers through JAM (Jan Dhan-Aadhaar-Mobile) Number Trinity, which can wipe every tear from every eye.
It will be Nirvana for two reasons– the poor will be protected and provided for; and many prices in India will be liberated to perform their role of efficiently allocating resources and boosting long run growth, it said.
The Survey suggested that fiscal deficit should be brought down to 3 per cent of GDP in the coming years, while the Current Account Deficit (CAD) is estimated to fall to 1 per cent in 2015-16. The retail inflation is expected to be between 5-5.5 per cent next fiscal.
Observing that India’s fiscal situation has improved, the Survey said there should be no ground for complacency and India must meet its medium term fiscal deficit target of 3 per cent.
India can balance the short-term imperative of boosting public investment to revitalise growth with the need to maintain fiscal discipline. Expenditure control and expenditure switching, from consumption to investment, both in the upcoming budget and in the medium term will be key, it said.
The Survey also made a case for cut in interest rate by the RBI saying it would be one of key factors that will boost growth. Fall in crude oil prices, reforms and normal monsoon could also help to accentuate growth.
In a separate chapter on 14th Finance Commission, the Survey quoted both the first Prime Minister Jawaharlal Nehru and current PM Narendra Modi, to emphasise that adoption of FFC recommendation and creation of NITI Aayog would promote government’s cooperative and competitive Federalism.
The Survey said the macro-economy has been rendered more stable, reforms have been launched, the deceleration in growth has ended and the economy appears now to be recovering, the external environment is benign, and challenges in other major economies have made India the near-cynosure of eager investors.
Inflation has declined by over 6 percentage points since late 2013, it said.
Foreign portfolio flows (of USD 38.4 billion since April 2014) have stabilised the rupee, exerting downward pressure on long-term interest rates, reflected in the yield on 10-year government securities, and contributed to the surge in equity prices (31 percent since April in rupee terms, and even more in US dollars, ranking it the highest amongst emerging markets), it said.
Foreign exchange reserves are likely to increase by USD 26 billion to USD 340 billion by fiscal ending March 2015.
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 forecasts of a normal monsoon.
The economy, it said, will over-perform on inflation which would clear the path for further monetary policy easing.
To provide legal certainty and confidence to investors, the ordinances on coal, insurance, and land need to be translated into legislation approved by Parliament.
At the same time, the constitutional amendment bill to implement the goods and services tax (GST) also needs to be enshrined in legislation first by Parliament followed by ratification by the States.
A single GST rate (across States and products) set at internationally competitive levels with limited exemptions would maximise its pro-growth, pro-compliance, and pro-single market creating potential.
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