‘The Indian economy is dead. Long live the Indian economy.’
That’s what we were led to believe sometime last year as inflation spiralled, growth rates plummeted and fiscal deficit went for a toss. It was partly because the government appeared tired, paralysed and on its last leg. It was also partly because the pessimism turned contagious.
And then something happened.
Narendra Modi won a spectacular election, went to town like the knight in shining armour promising to clean the augean stable and race India to supremacy in the 21st century. Neat slogans rent the air: Clean India, Make in India, Digital India, theJan Dhan … and so did a spate of acronyms. Modi won several electoral battles and suddenly, and almost magically, the optimism was back. Interestingly, the Economic Survey mirrors this mood of optimism.
It now says that the clouds have disappeared and that sunny days are ahead. Can you believe this: India grew at 6.9 per cent this fiscal and threatens to grow at 8.5 per cent next fiscal and at 10 per cent in the near future, making it amongst the fastest growing economies, ahead of the dragon, China? JAM, the acronym for Jan Dhan, Aadhar (an old wine in an old bottle) and Mobile, is set to wipe the tear from every eye, screams the Survey. Sold well, it could do just that. Remember, when in opposition, the BJP had called Aadhar anti-national!
We now live in lucky times
Petrol price, which once threatened to reach the Rs 100 mark ahead of Sachin Tendulkar’s hundred 100s, has fallen like a house of cards, thanks to a crash in crude oil prices. This itself helps India a lot. The rupee has sort of stabilised, albeit it being significantly above where it was 5 years ago.
The Survey, always scripted by an economist, as opposed to the budget, always scripted by politicians and bureaucrats, believes that India is amongst the most attractive investment destinations. The presence at the helm of a no-nonsense prime minister and the growing recognition that the introduction of a Goods and Services Tax (GST), something that has been gathering dust for donkey’s years, and expanding Manmohan Singh’s direct transfer scheme are potential game changers.
With inflation set to hover around 6 per cent monsoon expected to be good, things are likely to be hunky dory. However, if we have to score in the medium term, the survey argues that it can happen only with the help of the private sector. There is the happy fear that a surfeit, rather than a shortage of foreign capital, will cause exchange rate management problems.
From consumption to investment
The survey cautions India to stick and stay within a medium term fiscal deficit target of 3 per cent of GDP, quickly move to eliminating revenue deficits, exercise expenditure control and propel growth. Such control would mean that the quality of expenditure must be shifted from consumption to investment. That’s a euphemism for saying, cut subsidies.
There are some interesting homilies on subsidies. While welcoming them, so as to make life affordable for the poor, it wonders if these subsidies are effectively targeted at the poor. Something very similar was what Rajiv Gandhi had observed 30 years ago. The realisation that JAM can help plug leaks is welcome.
Indian manufacturing in the last five years has been a failed story. A targeted Make in India campaign can help in this framework.But one must not forget the shocking fact that the stock of stalled projects is around Rs 880,000 crore around 7 per cent of GDP. But given the horrible skill set in the country, Make in India can work well only if Skill India works.
There is a final realisation that the Railways must be commercially viable and this should be possible not just because the investment multiplier is 5 (the effect of the increase in public investment in the Railways on overall output). Every institution must make profits. As Drucker said, “There are only two types of entitities: profit making and loss incurring.
The Survey doesn't suggest a big bang budget. That's interesting. And Jaitley's budget, as we tell elsewhere in this issue, has been good on ideas. We need to implement it to take the next leap forward.