Post the Economic Survey, much depends on Budget 2018-19

The Survey places the GDP growth estimate for the current fiscal at 6.75 per cent. This figure is a tad higher than the Central Statistics Office’s projection at 6.5 percent, as in its own estimates, it has not incorporated the pick-up in growth in the latter half of the year. The Survey estimates that as a result of the reforms undertaken this year, real GDP growth will rise by 7 to 7.5 percent in the next fiscal. This would reinstate India’s position as the fastest-growing major economy in the world.

The Survey highlights an interesting aspect. Over the last 4-6 quarters, India’s growth has temporarily decoupled with that of the world economy. Until early 2016, economic growth in India was accelerating while that of other countries was decelerating. Since then the opposite has been true. 

So, what do the findings of the Economic Survey tell us about the focus of the upcoming Budget? First, as expected, the agriculture sector will be in deserving focus on February 1. 

The Survey stresses on giving adequate support to the sector. However, in a major setback to Modi’s aim of doubling agricultural income, the Survey provides a key finding that, due to climate change, annual agricultural incomes could reduce by 15-18 percent on an average. In un-irrigated areas, this figure could climb up as high as 20-25 percent. This provides some crucial Budget recommendations. 

Higher investment needs to be made towards expanding irrigation with the implementation of efficient drip and sprinkler technologies. Moreover, a plan to provide direct income support to farmers can be put in motion to replace inefficient agricultural subsidies. 

Second, the Budget needs to address the perpetual problem of employment. Although India’s unemployment rate is around 3.5 percent, the unemployment rate in the 15-24 age group stands at 10.5 percent, as per recent International Labour Organisation estimates. Therefore, India has an abysmally low capacity to provide jobs to first-time workers. The only solution for India is to strengthen its manufacturing sector. 

Providing incentives to labour-intensive export sectors in the Budget can kill two birds with one stone. Apart from providing jobs, growth in the export sector will imply higher current account surplus for the Indian economy which can provide a cushion against swings in the global oil prices. 

Therefore, it would go a long way in reducing India’s historical macro-economic vulnerability that the Survey highlights. There are various other aspects of the economy that will hopefully be addressed when Finance Minister Arun Jaitley stands up in Parliament on the fateful day. Reviving investment activity, stabilising the GST and, most importantly, the question of sticking to the fiscal deficit targets; quite a lot hangs in balance on the upcoming Budget. It will be interesting to see the course that the government decides to take.