The irrational exuberance of the share markets notwithstanding, the Economic Survey 2018 does reflect optimism. Barring unforeseen interventions, such as a steep rise in the global crude prices, the economy seems to be on track to grow at a decent 7-7.5 percent rate in the next financial year. Which means the twin effects of the notebandi and the somewhat rushed introduction of the GST have been largely discounted.

In fact, both have boosted the number of tax-filers, though a majority hardly pay any tax. Even then, bringing them into the tax net is a huge plus of the twin blows-cum-reforms. Indeed, Chief Economic Adviser Arvind Subramanian’s well-written and comprehensive overview of the economy, with all its minuses and pluses, as also a closely reasoned prognostication for the immediate future, ought to help clear the climate of gloom and doom. Despite some major concerns such as the ‘twin balance sheet’ problems relating to the  unresolved issue of non-performing assets of the banking sector, especially those in the public sector, and the indebtedness of a large number of private companies, the Survey projects a pick-up in the investment in the private sector.

The dead-weight of NPAs on the economy was a legacy of the UPA while this government, particularly in recent months, has urgently sought to tackle the problem, refinancing the stricken banks, allowing them to use the newly-available tools under the Insolvency and Bankruptcy Code, etc. This has forced some of the marquee corporate entities to sell off at the pain of attachment of their remaining assets and even a stint in jail for owners. Its implementation is bound to inject transparency and responsibility in the disbursal of credit. And eventually lead the lending institutions to insist on thorough due diligence before sanctioning loan as was the norm till a couple of years ago when a minister’s son could swing tens of crores for a crony capitalist.

However, the Survey clearly flags the imponderables which could hinder growth. One, of course, is the price of oil. A $10 increase per barrel could cause a 0.2-0.3 percent dip in growth. The global oil trajectory in recent weeks is moving upwards, lending credence to this known unknown for the overall growth. Thanks largely to the benign crude oil prices, inflation has been moderate, the recent increase in food prices being ascribed to seasonal factors. Though, not unduly concerned about the relentless spurt in the Sensex, the Survey does strike a note of caution. Should the fisc get out of hand following a considerable rise in global oil prices, leading to higher inflation and pressures on the government to reduce the levies on petroleum products ahead of the general elections due next year, foreign investors could begin to cash out from the share markets. The resulting pressure on the RBI to tighten money supply could act as a dampener on growth. In the intricately interlinked economy, the cause and effect of a single factor can have far-reaching consequences.

Pointedly asked about the incessant rise of the Sensex, Subramanian was non-committal, refusing to definitely dub it a bubble, though someone did bandy about that scary word at the post-presentation press conference. The Survey emphasised the need in the medium term for special policy attention to agriculture, employment and education. It is a tall ask, given the huge problems of funds and infrastructure bedeviling the three key sectors. Also, disappointing for the trade and industry lobbies will be the virtual rejection of the demand for a lending rate cut, with Subramanain clearly saying the present state of the economy did not warrant it.

But, he was candid enough to admit that a reversion to populism, especially with a general election looming large on the horizon, could spoil the economic scenario. Relying on private investment and exports for growth might be dicey in view of the fact that neither has seen a remarkable spurt. Directing savings into investment instead of equities via mutual funds would require a change in the mindset of middle class savers who after the dip in bank deposit rates and the increased policing of accounts, after notebandi and GST, have found a safer way in mutual fund investments.

Exports are still unable to shake off the negative effect of GST. Yet, holding down fisc despite severe challenges was  a huge positive. How  to resist the pressures for freebies in an election year will be the biggest challenge for the finance minister in the next financial year. Meanwhile, Subramanian can be complemented for pepping up the Economic Survey, which till his advent as the CEA, was dull as ditchwater, read by a handful of experts and others condemned to go through  bureaucratese  and convoluted text.

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