The Economic Survey 2013-14 lucidly highlights the mess we inherited: A robust economy with euphoric investor sentiment that NDA left in 2004, has been brought down to a faltering economy with a gloomy outlook. We left office in 2004 with 8% GDP growth and are now inheriting 4.5% and 4.7% growth, in the last two years. Industrial sector growth in particular, has been abysmal: 0.65% in FY14 versus 7.3% when we left in 2003-04. Manufacturing, in fact, contracted! The job creation record in the last decade is dismal – 6 crore jobs were created between 2000-2005 versus 27 lakh jobs in 2005-10. This has stalled economic progress and well-being of the common man deeply; our efforts will be towards restoring confidence and bringing prosperity to every Indian. Per capita (external) debt has quadrupled from Rs. 4,800 in 2003-04 to Rs. 20,500 now! The ramifications on our future generations, who will be saddled with this debt-burden, are alarming! While we left at 1.3% food inflation in 2003-04, we inherited back-breaking double digit food inflation (11.95% in Q3FY14) and staggering prices for essential commodities. Can you imagine the plight of a common man? How is he expected to run his home comfortably? What supply-side measures have been taken by UPA to assuage his pain? It is a crying shame! NDA demitted office with three years of record Current Account Surplus ($14.1 Billion in 2003-04) whereas we are inheriting a DEFICIT of $32 Billion from UPA. The forex volatility (from 45 -> a peak of 69 last year) has spooked the business and investor community. How is one expected to take decisions with such variance on forex alone? What does this say about the global outlook on India? Forex reserves tripled under NDA whereas it has stayed practically flat under UPA, for the last 5 years! This is deeply troublesome, especially in light of India’s ever-increasing debt burden. The scale of mismanagement of internal and external sectors of the economy has bode ill for every sector of the economy, and every citizen of the country. This trend will have to be reversed, by our government, once and for all. The Economic Survey lays out some critical points as part of its proposed “reform agenda” – one wonders, why these weren’t implemented in the last decade! However, we wholeheartedly embrace the points suggested: Reviving investment should be Govt.’s top priority, along with job-creation and maintaining a steady low-inflation regime. Reforming public finances in a sustainable manner by tax & expenditure reform and creating the legal & regulatory framework for a well-functioning market economy are also necessary. The Survey highlights some crucial points – tax regime must be simple, predictable and stable; Govt. must shift subsidy programs away from price distortions to income support and a change in the focus of govt spending towards provision of public goods and a system of accountability through a focus on outcomes. An important metric on investments (new assets created) that needs to be noted: “Gross fixed capital formation (GFCF)” – this has contracted in FY14 (it grew by 10.6% in FY04)! Private sector GFCF contracted by 3.2%. Just imagine the impact on job-creation if investments dry up! These were largely due to regulatory bottlenecks, raw material constraints and a regime of high interest rates. Repeated cut-backs of essential govt capex (Rs. 91000 crore in FY14, Rs. 77000 crore in FY13) have also worsened the investment situation. High inflation with sluggish growth and low investments is a recipe for stagflation. Herculean efforts will need to be undertaken, to avert this situation. Interestingly, the same problems and issues raised last year’s survey continue to persist. I wonder what lessons were learned and why no concrete measures were taken in time. Data from CMIE capex database, cited in the Economic Survey, point to a precipitous fall in rate of completion of infrastructure projects and an astronomical rise in value of stranded projects. Another reason for low investments is the abysmal ranking of India in the World Bank’s “Ease of Doing Business” ranking: 134th in the world, 186th in enforcing contracts. Our govt is committed to improve the India story. The “Issues and Priorities” Chapter in the Economic Survey is particularly insightful. I encourage all to read it: indiabudget.nic.in/es2013-14/echap-02.pdf Tax system is in urgent need of an overhaul: Retrospective amendments, frequent changes, arbitrary tax claims (esp. in transfer pricing) have all hurt investor sentiment rather deeply, further exacerbating the situation. Our government is all for GST, subject to concerns of states on compensatory mechanism being addressed. Pleased to learn that Economic Survey argues a shift away from the cash-based accounting process to accrual-based system, in a calibrated manner, something I have propounded for many years. I have propounded this for years. Quote from my speech in Rajya Sabha on 26th March 2012, on accrual system of a/c: piyushgoyal.in/speeches/14-speech-in-rajya-sabha-on-the-budget-general-2012-13 The then FM (now Honble President) Shri Pranab Mukherjee ji had also found merit in this idea (of accrual-system of accounting) Misallocations and skewed incentives in the current subsidy regime also need a review. They need to be better targeted and “transaction costs” need to be reduced significantly. A strong case for a move to a market based economy while addressing potential pitfalls (e.g., market failures) and installing safeguards (e.g., strong institutions, transparency etc.) has been made: I entirely agree with the proposition.
Posted on: Wed, 09 Jul 2014 17:45:33 +0000