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India haven of stability: Economic Survey 2016

Presenting an optimistic picture of the Indian economy, Chief Economic Advisor Arvind Subramanian's Economic Survey, 2015-16, said that amidst the gloomy landscape of unusual volatility in the international economic environment, India stands as a haven of stability and an outpost of opportunity. 

The Survey says the country's macro-economy is stable, founded on the government's commitment to fiscal consolidation and low inflation. The Survey underlines that India's economic growth is amongst the highest in the world, helped by a reorientation of government spending toward needed public infrastructure. Describing these achievements as remarkable, the Survey emphasises that the task is now to sustain them in an even more difficult global environment. 

The Survey further states that the country's performance reflects the implementation of a number of meaningful reforms. There is palpable and pervasive sense that corruption at the Centre has been meaningfully addressed which has been reflected in transparent auctions of public assets. FDI has been liberalised across the board and vigorous efforts have been undertaken to ease the cost of doing business. Stability and predictability has been restored in tax decisions reflected in the settlement of the Minimum Alternate Tax (MAT) imposed on foreign companies. Major public investment has been undertaken to strengthen the country's infrastructure. In the farm sector, a major crop insurance programme has been instituted. The Survey has highlighted creation of bank accounts for over 200 million people under Pradhan Mantri Jan Dhan Yojan (PMJDY), the world's largest direct benefit transfer programme in case of LPG with about 151 million beneficiaries receiving Rs 29,000 crore in their bank accounts and the infrastructure being created for extending the Jan Dhan Aadhar Mobile (JAM) agenda to other government programmes and subsidies. 

However, the Survey has expressed concern over approval of the GST Bill being elusive so far, the disinvestment programme falling short of targets and the next stage of subsidy rationalisation being a work-in-progress. It adds that corporate and bank balance sheets remain stressed affecting the prospects for reviving private investments.

It further says that perhaps the underlying anxiety is that the Indian economy is not realising its full potential. 
 

The Survey states that the country's long run potential growth rate is still around 8-10% and realising this potential requires a push on at least three fronts. First, India has moved away from being anti-markets and uncritically pro-state to being pro-entrepreneurship and sceptical about the state. But being pro-industry must evolve into being genuinely pro-competition.

Similarly, scepticism about the state must translate into making it leaner. It emphasises that the key to creating a more captive environment lies in addressing the exit problem which affects the Indian economy. Second, the Survey calls for major investments in health and education of people to exploit India's demographic dividend to optimal extent. Third, it says that India cannot afford to neglect its agriculture. 
 

The Survey points out that the upcoming Budget and Economic Policy will have to contend with an unusually challenging and weak external environment. It suggests that one tail risk scenario that India must plan for is a major currency re-adjustment in Asia in the wake of a similar adjustment in China.