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Economic Survey 2017: Growth is likely to return, at a robust clip

union budget Updated: Jan 31, 2017 21:18 IST
Economic Survey

Arvind Subramanian, chief economic adviser at India's Finance Ministry. The latest one volume Economic Survey for 2016-17 – with a more detailed second part slated for July 2017 — the third one for the CEA, Arvind Subramanian, has triggered interest on what he has to say on India’s growth post-demonetisation. (Reuters)

Economic Surveys are not intended to steal the thunder of the Union budget with pointers to its provisions. Instead they highlight problems and prospects of the Indian economy against which budgetary numbers are finalised. They vary in quality depending on the calibre of the chief economic advisor who often flags reforms or “forward looking themes” regardless of feasibility. The latest one volume Economic Survey for 2016-17 – with a more detailed second part slated for July 2017 -- is the third one for the CEA, Arvind Subramanian, and has triggered interest on what he has to say on India’s growth post-demonetisation.

The last three Economic Surveys, including the present one, have been unusually bullish on India’s growth prospects. In the Economic Survey for 2014-15, the CEA felt that the country was in a “sweet spot”: a strong political mandate won by the Narendra Modi-led NDA government together with a favourable external environment provided a historic opportunity to propel India to double-digit growth. The Economic Survey for 2015-16 highlighted that India was a haven of stability as the fastest growing economy in the world although the external environment was volatile and turbulent.

What does the Economic Survey for 2016-17 state regarding its earlier forecast of robust GDP growth of 7 to 7.75 %? Taking out 86 % of cash in circulation on November 8, 2016 is bound to contract India’s output of goods and services or gross domestic product (GDP). According to the latest Economic Survey, when compared to the baseline growth of 7%, the cash squeeze will reduce 2016-17 growth to 6.5% to 6.75%. This is more in line with the 6.6% rate projected by multilateral agencies like the International Monetary Fund.

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Growth in 2017-18 is pegged at a robust clip of 6.75% to 7.5%. As the effects of demonetisation are considered short-lived or transitional, once the cash supply is replenished by March 2017, it will be business as usual for the economy. The Survey further states that contractionary effects on the informal sector that accounts for 45% of GDP and 80% of employment would dissipate by the year-end when the currency in circulation should once again be back to normal. Overall GDP growth will thus be back to normal in 2017-18.

The last three Economic Surveys have also much in common as far as reform themes are concerned such as the JAM or Jan Dhan Yojana-Aadhar-Mobile trinity to effect direct cash transfers to beneficiaries. Explicit subsidies on food, fertiliser, LPG, electricity and water hardly benefit the poor. Accordingly, it is felt that such subsidies must be rolled back and direct cash transfers provided to those below the poverty line.

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The Economic Survey for 2015-16 mentioned that 151 million beneficiaries received ₹29,000 crore into their bank accounts to use LPG, the world’s largest direct benefit programme.

JAM has now acquired critical mass to roll out its benefits nationally. Around 266.8 million Jan Dhan Yojana accounts have been created, out of which 153.6 million are Aadhar seeded. More than 111 crore out of the 130 crore population have got Aadhar cards. Around 105 crore have mobile phones. If the ranks of the unbanked can be reduced significantly – and that is a big if -- the time is indeed ripe to think of a universal basic income – a sum of money to every citizen to take care of the bare necessities of life in lieu of explicit subsidies that amount to as much as ₹ 3.8 lakh crore or 4.2% of GDP.

The pros and cons of a universal basic income is no doubt a prominent feature of the latest Economic Survey. Actually, it is a natural outgrowth of the JAM trinity focus of earlier Surveys. A simple question was posed in the Economic Survey for 2015-16, notably that “Suppose the government wanted to transfer ₹1,000 to every Indian tomorrow. What would that require? The government must be able to identify the beneficiaries. The government must be able to transfer money to beneficiaries. Lastly, beneficiaries must be able to access their money. The JAM trinity is a means to this end.

All of this is a short step to argue for a universal basic income to impact on dead end poverty and deprivation. The Survey says that a UBI that reduces poverty to 0.5% would cost between 4-5% of GDP, assuming that those in the top 25% income bracket do not participate. The tab naturally would climb to 10% of GDP or more if a transfer were made to every citizen of the country. For such reasons, the feasibility and affordability question is predicated on removal of explicit subsidies and the Centre and states agreeing on cost-sharing. That could be a tall order. Even if a UBI is not ready to roll out, it certainly warrants serious discussion concludes the Survey.

N Chandra Mohan is an economic and business commentator based in New Delhi. The views expressed are personal.