The Economic Survey, released Monday as a forerunner of the Union Budget 2018 for the coming financial year, is modest about its growth projections. A growth between 7 per cent and 7.5 per cent is envisaged, but this is conditional mainly to “stability in the oil prices” that is going high of late combined with other factors. The projections for financial year 2018-19 are an improvement on the performance this financial year ending March 31; but notably a similar projection last year did not materialise. Real GDP growth for the next fiscal may or may not rise to expectations, and there at best can be cautious optimism. The phrase ‘cautious optimism’ can be considered the catch. This survey seems to be a lot more grounded than the previously tabled ones both by the NDA and the earlier UPA. The Survey quite clearly says that the country has finally managed to extricate itself from the damages caused by demonetisation and implementation of the GST. Unfortunately, due to the lack of sincerity, the political leadership is incapable of openly admitting the blunders it has committed in the recent past.
The survey prepared by chief economic adviser Arvind Subramanian has assessed the GDP growth for the present fiscal at 6.75 per cent, just about what the Union government has been projecting for the year. The present pace of growth can be termed very unimpressive, but this positive push had also to do with the fall in oil prices. That scenario is currently on the reverse mode due to cut in oil production in the US, after a period when it had edged itself to the fore on the back of shale oil exploration and drilling by normal sources. By other reasons, too, the present upward projection of GDP growth for the coming fiscal needs to be taken with a pinch of salt. Industrial growth registered for the present fiscal is 4.4 per cent; this, against more than 7 per cent in 2016-17. Farm sector growth this fiscal is placed at 2.1 per cent; another poor show. The drastic drop in farm sector growth clearly indicates that formalisation, urbanisation and industrialisation may just not be the path for growth for present day India.
Notably, the Economic Survey report presented by Subramanian last January, too, had projected a 7.5 per cent GDP growth; and this could not be achieved. The reasons cited are the impact of demonetisation from November 2016, which hit money circulation and markets adversely in the first half of 2017. GST rollout in the second half came as another, albeit temporary, dampener. The present projection for fiscal 2018-19, too, is faced with uncertainties linked to oil prices. There is little to show that effective mechanisms to counter such hits are on the anvil. It goes to show the NDA government headed by Narendra Damodardas Modi has not been able to live up to the expectations of the people on the economic management front. Rather, it took a step back vis-a-vis the performance of the Manmohan Singh-led UPA governments.
On the positive side, the tax bracket has been widened by 50 per cent, which could have a positive bearing on the strength of the exchequer. Fiscal deficit, which was projected at 3.2 per cent in the present fiscal, is projected to come down to the level of 2.5 per cent; an improvement evident also in the government’s reduced borrowing plans from `50,000 crore to `20,000 crore as announced earlier this month. The manufacturing sector showed positive trends in November, with 8.4 per cent growth, a 17-month high. That trend should hopefully persist in the future as well.
Two aspects on which the Economic Survey projects optimism are on giving a boost to exports and raising the investment scenario to new highs so as to achieve the 7.5 per cent growth. However, there is little sense to pin hopes on the FDI front to rev the economy up unless investments come in. Promises and MoUs mean little. No major uptick has been noticed on this front. Red tape remains a serious issue for prospective investors. The government has not eased matters. The hope about a rebound in exports, too, is in the wait-and-watch mode. Unless there is substantial growth in exports, the impact on the economy will be minimal or marginal.
Chances thus are also that Subramanian will have to eat his words again by January 2019 — just months before the next General Election. He has already bailed himself out by noting that this is the pre-election year and hence the government’s resolve to push matters could be to the minimum. This much is clear: economy will certainly be not a strong point for the present government to face the voters in 2019. Apart from this, Budget 2018 will certainly be a populist one aimed at garnering votes. India now, with oil prices rising and very little FDI coming in, is flying into strong headwinds. The going is bound to get even tougher.
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