T K Arun
Telling the truth to power is, of course, the job of journalists. But it used to be the case that the pre-Budget Economic Survey took pains to highlight challenges (near-term and structural) that policy and Budget outlay need to address.
This year’s Survey has the unique distinction of brushing off two traditional responsibilities of the Survey: identifying constraints and making recommendations. Instead, it sings an erudite paean to India’s economic management over the last eight years and projects continued growth, even if the world economy slows down.
For all its demure reluctance to make eye contact with economic problems, the Survey’s growth projection is quite modest: 6. 5% in 2023-24 and 6. 5-7% in the medium term. For the numerically unchallenged, this pushes the $5 trillion economy target well beyond 2028-29.
Dependence on RBI
The Survey relies on RBI to make the case that inflation is moderating and would be well within the upper bound of the 4-6% range within which RBI would like to contain inflation. It expects world growth to be moderate in the coming fiscal (current indications are that the advanced economies would escape a harsh recession) and over the next decade.
● CEA V Anantha Nageswaran makes the point that moderate world growth would benefit India through depressed energy and commodity prices,
● this effect offsetting the lower export growth moderate world growth would also imply.
● This makes sense.
The Survey stresses how government policy and expenditure should and do, in fact, achieve tangible improvement in the quality of life. It has a longish chapter outlining how assorted government schemes have resulted in exactly such improvement. While the Survey last year had tried to brand the government’s policy style as agile, quickly responding to developments, as reflected in high-frequencyindicators provided by private as well as public providers, this year’s Survey makes the case of convergent policymaking, with initiatives in health, education, energy, road and rail building and digital governance all cumulatively and interactively improving the quality of life of the average Indian. The Survey has long tables to support this thesis.
● But the hard fact remains that the demand for work under the Mahatma Gandhi National Rural Employment Guarantee Act has been on the upswing, as late as in November and December of 2022.
● Work under MGNREGA is a dole that uses manual labour as a self-selection tool that keeps out the well-off.
● Increasing demand for rural dole suggests two things: return of the migrants who fled towns during Covid is delayed and distress continues in large parts of the country. The Economic Survey stopped revealing figures on the accumulated losses of state electricity utilities some years ago. Now, discussion of the power sector is subsumed in talk of climate change, the energy transition and India’s braveclimate commitments. This thwarts putting the spotlight on one, political patronage of power theft, crippling the finances of state utilities and, two, the aborted agro-processing revolution that awaits continuous supply of reliable power in rural areas during daytime.
Facets of Public Finance
The Survey does bring out some facets of public finance that have not been part of the general discourse.
● India stands along with Germany andIndonesia among a minority of nations that have brought down their debt levels as a proportion of GDP, even if in relation to an arbitrary year in the past.
● The Survey also makes the point that what really matters, when it comes to the health of public finances in relation to debt and fresh borrowing, is that the nominal rate of growth should be higher than the nominal cost of capital, that is, the rate of interest.
● As the growth rate is higher, the share of debt servicing will shrink as a proportion of GDP.
● This is the theoretical justification for stepping up investment out of budgetary funds.
● If the money is spent on creating assets that would boost future productivity, instead of on current consumption, it would boost growth in the present and enhance competitiveness in the future.
● The Survey’s approving nod to the rising share of capital expenditure in Budget outlays of late amounts to a welcome prescription for further increased outlays on roads, Railways and other infrastructure in this year’s Budget as well.
While discussing the external sector, the Survey limits itself to growth, coordinated policy rate increases in advanced economies and currency movements. In a separate section, it describes India’s efforts to build domestic capacity in advanced silicon. In the real world, increasing geopolitical complexity is a salient factor determining a nation’s growth prospects. It might be a good idea for future Surveys to weave this also into the fabric of convergent policy to promote India’s wellbeing.
This year’s Survey ditches the last edition’s section on remote-sensed graphic indicators of economic activity, but adds a section on high-frequency indicators, including several supplied by private entities. We should see it as a sign of the further permeation of the public sector by the private sector and of the government’s market-friendliness.
The Survey would have made a stronger impact, if it had paid as much attention to the economy’s weaknesses as it did to its achievements.
This article was first published in Times of India as What Economic Survey didn’t say about India’s Economy on 31st January 2023