Growth clawing back, But poor monsoon, Iraq war could play spoilsport

New Delhi :  As the BJP’s foremost voice on economic issues, union finance minister Arun Jaitley has on umpteen occasions in the past eloquently outlined the failures of the now dethroned UPA dispensation. Now as the man in charge of the economy, Jaitley has the opportunity to apply his corrective prescription.

In sync with the parliamentary practices, he laid the Economic Survey for 2014-15 a day before he comes up with his first budget. The survey, a document prepared by economists in the government establishment, who maintain an arm’s length from it, is an admixture of good and bad news.

It points out that after two years of sub-five percent growth, the economy is back on the road to recovery and a growth rate of 5.4 to 5.9 percent is forecast for this year, with a propensity to be on the lower side of this band.

But the good news comes with a healthy dose of precautionary warnings. Food and fuel prices, the two components that heavily influence the rate of inflation, are directly co-related to the quality of monsoon, and the status of external conditions. The direct implication being that the growth forecast would hold only if the monsoon is good, and there is no extraordinary rise in crude oil prices due to the current violent conflict in Iraq.

The survey says: “There are downside risks to the economy arising from a poor monsoon, the external environment and the poor investment climate. GDP growth slowed to below 5 per cent for two consecutive years, i.e. 2012-13 and 2013-14.

The combination of domestic structural constraints, inflationary pressures, particularly food inflation and uncertainty in the global economy, has affected growth and posed challenges for macroeconomic stability.”

With his party having won an unprecedented mandate on the theme of ‘hope and change” Jaitley has the additional political responsibility of meeting the heightened expectations of the middle class, the corporate sector as well as discharging the role of a prudent manager of the economy. The survey presented on Wednesday is quite rich in terms of offering various options for improving the financial health of the country, but quite expectedly steers clear of the popular dimension of budget-making. This aspect is surely not in its brief.

Thus fiscal consolidation and reforms are high on the agenda of the survey, just as moderation of inflation and providing the growth impetus to the manufacturing sector figure in this document.

According to the survey the previous government achieved fiscal consolidation mainly through a reduction in grants for creation of capital assets and capital expenditure and this is not such a good idea over the long-term. Holding that subsidies are one of the main culprit for the high fiscal deficit, the survey said:”An important factor in the increase in the Centre’s fiscal deficit after 2008-09 has been the sharp increase in subsidies from 1.42 per cent of GDP in 2007-08 to 2.56 per cent of GDP in 2012-13. For 2013-14 the subsidy bill is 2.26 per cent of GDP.”

In the past finance ministers are known to have made selective use of the themes and prescriptions that have been referred to in the economic survey as this is largely an exercise by the economists, and not politicians. Jaitley being an accomplished politician and a thinking one at that would surely be expected to come up with innovative prescriptions, even though prime minister Narendra Modi’s ‘bitter pill’ expression had caught the fancy of the union railways minister Sadananda Gowda while presenting the rail budget yesterday.

Anil Sharma

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