By the time you read this, you would have been overwhelmed by words like ‘growth’, ‘fiscal deficit’ and ‘reforms’. You will hear more on that in the next few hours as Finance Minister Nirmala Sitharaman rises to present the Union Budget. She will say a lot and promise a lot. If you want to know the government’s thinking, you need to read the Economic Survey published last Friday. It is a document that underscores the importance of economic growth to pull India out of the aftermath of the Covid-19 pandemic. The word ‘growth’ appears 888 times in the two-part 961-page survey.
Economic Surveys are usually tabled a day ahead of the Union Budget. However, this year, a lot of exceptions are being made. The survey is a review of the year gone by. It is advice to the government by the economic think-tank. The chief economic advisor to the government is usually the author of the survey. Dr K V Subramanian, the chief economic advisor, begins by lauding the government effort to minimise life losses in a worst-case scenario amidst high uncertainty.
The references to growth highlight the fact that it is the need of a country of India’s size. The survey clearly states that India must focus on economic growth to lift the poor out of poverty. Redistribution of wealth is possible in an emerging economy only if the economic pie grows. You cannot just take money from the rich or borrow to pay for the poor. There has to be a steady growth in the economy for everyone to benefit. That line of thought is important for your finances too. If the government concentrates on economic growth, your money will see a steady growth over the years.
Businesses rely on economic growth for expansion. The year 2020 has disrupted everything. However, the faster the country gets back on the growth path, the better. The survey finds that India is getting around. In 2021-22, it is likely to grow at above 11 per cent, the survey predicts. It is the fastest growth in decades.
A lynchpin to India’s growth is the way the government allocates resources. The word ‘infrastructure’ appears 260 times in the Economic Survey. The survey highlights the importance of the infrastructure pipeline that the government is planning to execute over the next five years. That could trigger new income opportunities for many people looking to earn more or seek employment.
When the finance minister rises to speak, you need to watch out for things she says on how the government proposes to spend money. You may want to watch out for an excellent allocation to create new assets like roads, rails, airports or bridges, education, healthcare and sanitation that would work well for financial markets.
On a very encouraging note, the Economic Survey mentions the word ‘reform’ 178 times. An essential part of reforms is disinvestment. Pundits have spoken and talked of the government’s need to divest ownership in public sector companies to raise non-tax revenue. The government in India has been historically unwilling to do so. However, other reforms are essential to enhance the efficiency and productivity of assets owned by the government and the private sector.
The survey devotes an entire chapter to the issue of process reforms. Words like ‘regulation’ and ‘over-regulation’ find several mentions in the survey. The key is the emphasis of the economic think-tank on the ‘over-regulation’ bit. The survey is critical about the effectiveness of law enforcement in India.
The survey quotes findings from the ‘World Rule of Law Index’ that provides a cross-country comparison of regulatory enforcement. India’s overall rank is 45 out of 128 countries. However, when it comes to regulatory enforcement, it ranks a low 104.
What it means to your money
Economic Surveys are like advisory notes to the government. Usually, political compulsions determine the course of the Union Budget and the allocation of capital. You may get a minor tax relief here and there. However, keeping high hopes may not help as the government faces revenue challenges. We are in an environment where RBI would keep interest rates low for some time to come. As such, your bank and fixed deposits are not going to help you fight inflation.
The government concentrates on stimulating economic growth. You could see your savings channelised into stock markets grow steadily. You may want to review your asset allocation with your financial advisor based on your life goals after the budget.
(The author is editor-in-chief at www.moneyminute.in)