The government struck a note of optimism Wednesday forecasting that India will grow at 5.4-5.9% in 2014-15, up from 4.7% last year, but admitted spinning jobs for teeming millions will be a challenge.
Finance minister Arun Jaitley, set to present his maiden budget on Thursday, has the difficult job of juggling long-term economic reforms — which might involve some bitter fiscal pills — with Prime Minister Narendra Modi’s electoral promise of good days (acche din) to a country that added only 15 million jobs during 2005-12. In a sharp contrast, 60 million jobs were created between 1999 and 2005.
“The defining challenge in India today is that of generating employment and growth,” said the annual Economic Survey 2013-14 tabled in Parliament Wednesday.
“Jobs are created by firms when firms invest and grow. Hence it is important to create an environment that is conducive for firms to invest. The recent business cycle downturn has seen a sharp decline in investment. Reviving investment is, therefore, on top of the government’s priorities.”
“Good quality jobs are created by high-productivity firms,” it said, adding a return to 7-8% growth was possible only after 2015.
The economy has grown at sub-5% for two successive years presenting the Modi government with the daunting task of cooling prices and pushing growth with the added hurdle of a possibly deficient monsoon.
The survey predicted that inflation — wholesale prices were at a five-month high of 6.01% in May — would ease by year-end, providing room for interest-rate cuts.
“However, risks to the outlook stems from possible sub-normal monsoon and higher crude oil prices (on account of the Iraq crisis),” it said.
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Barely two months into office, but the clock is already ticking for the government to come good on poll promises. It needs to create jobs for tens of millions but with little elbow room in the treasury in the face of high inflation and borrowing rates.
It will be interesting to see how the new finance minister balances the books, without hurting India’s vast consuming class and limited legroom to splurge on populist welfare measures.
The report has triggered speculation that Jaitley will announce a higher fiscal deficit target.
“The Economic Survey 2013-14 conveys a sense of urgency about the course the economy needs to undertake,” Arvind Mayaram, finance secretary, wrote in the foreword to the report.
Jaitley’s predecessor set a target of keeping the fiscal deficit to 4.1 % of gross domestic product in an interim budget.
In seven of the last eight quarters India’s GDP has grown at less than 5%, hit by a toxic mix of high inflation, costly loan rates and poor services and industrial sector growth.
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The survey called for a revamp of the taxation system through new laws, goods and services tax and direct taxes code.
“Bad taxes” such as surcharges, cess and dividend-distribution levy need to “eventually go” to boost investments and growth.
Expert committees, said the survey, had identified problems with the tax system including retrospective amendment of laws and frequent changes especially after setbacks for the government in courts.
“This is coupled with long pendency of disputes and a taxation regime that is unfriendly to foreign investors,” the economic survey said.
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