Upbeat Economic Survey has an essential reminder for Finance Minister: Dear boss, please spend!
Good estimators aren't modest. If it's huge, they say so.
On Friday, Chief Economic Adviser KV Subramanian simply conformed to this logic. Presenting the Economic Survey 2020-2021, he beat the band about India's real and nominal GDP growth at an estimated 11% and 15.4% respectively next fiscal. This is pretty much in line with the IMF estimates released just a few days ago.
Still, being an official forecast, the nation needed to hear this twice over for the much-needed morale booster after the calamitous 24% contraction in Q1. In absolute numbers, the loss in estimated national output this fiscal is about Rs 8.3 lakh crore. Some of this is lost forever, but assuming real GDP grows 2.4% above the absolute level of FY20, it'll take two years to get back to the pre-pandemic level.
For now, we are witnessing a V-shaped recovery with currency, current account, forex reserves and the manufacturing sector all playing their part. The projected 11% growth would be the highest since Independence and could prop up revenue collections in the medium-term and resurrect the fiscal consolidation path.
But since we are coursing through a once-in-a-century crisis, Subramanian believes India must do away with cheese paring and adopt an active, counter-cyclical fiscal policy, but one that doesn't cause fiscal irresponsibility. Because every rupee the government spends now yields higher than non-crisis periods. Moreover, as the Survey notes, the risks from doing too little can be higher than the risks from doing too much. Perhaps, this may have been Subramanian's essential reminder to Finance Minister Nirmala Sitharaman.
But is there enough cash on the barrel? Unlike previous surveys advocating ways of raising resources including outright privatisation or new taxes or cutting subsidies, silence pooled around the latest Survey. Rather, it raised a high-pitch battle towards India's debt appetite.
Citing enormous research, Subramanian reasoned that India's debt is sustainable in the worst-case scenario of 8% nominal growth, and 3.8% real growth for the next nine years on a trot. In fact, a cross-country comparison of debt levels shows that India's debt-GDP are the lowest among G-20, OECD countries and BRICS nations. That's something. But given the record Rs 12 lakh crore debt binge this fiscal, it'll be interesting to see the borrowing plan for next fiscal amid a double-digit growth forecast.
Regardless of how much we borrow, the roadmap to fiscal consolidation has stretched by a country mile. Inevitably, this will spook chicken little credit rating agencies who threaten to downgrade our sovereign rating at the slightest touch. This was reason enough for the CEA to visibly fly off the handle.
Demolishing global rating firms' demi-god status, he thundered that India's ratings are replete with bias, not just now but for the past two decades, despite scoring well on both willingness and ability to pay. India's ability to repay is so high that it can write one cheque to clear all private debt and still be left with cash in its pocket. Thus, Subramanian petitioned firms to change the course as ratings affect FPI flows mechanically.
While Subramanian rooted for counter-cyclical fiscal policy, he did not dare to venture near the obvious landmine of fiscal consolidation. That job is left to the Fifteenth Finance Commission, whose report on the long-term fiscal strategy will be out next Monday.
The annual economic doctrine comprising two volumes had two aspects dominating the agenda: reforms and recovery.
It elaborated on flaws of the financial sector including the side-slide role of bank boards, and how poor asset quality review of bank balance sheets ended up with inaccurate capital requirements.
High out-of-pocket expenses in healthcare is a well-travelled fact and the Survey rightfully suggested that an increase in public healthcare spend to 2.5% of GDP can reduce out-of-pocket spend from 65% to 35%. It's now down to the Finance Minister to take the ball from here.
As for inequality amid a pitched battle to tax the super-rich, Subramanian, taking an analogy from Malgudi Days, reasoned that eliminating poverty via redistribution is undesirable without first growing the pie. India should focus on growth to lift the poor out of poverty and only high growth can mitigate 85% out of poverty, while the rest can be through redistribution.
His Survey defended new farm laws as heralding a new era of market freedom that will improve the lives of small and marginal farmers.
Talking about the need for reforms, the Chief Economic Advisor underscored how a company with zero litigation and proper paperwork takes over 4.3 years to down the shutters. This is more than twice the time it takes in OECD countries.
Meanwhile, for the first time, India found itself among the top 50 innovating countries, and while it aspires to be among the top 10, the private sector needs to step up as government does the heavy lifting contributing 56% of gross expenditure on R&D. This is three times the average contributed in the top 10 economies.
Taking the applause for India's handling of the Covid-19 pandemic, Subramanian reiterated how the government's calibrated approach focusing on necessities during lockdown and demand creation during the unlock phase stirred the economy back to life.
Stating that the bet of short-term pain for long-term gain had paid off, he noted how India avoided 3.7 million cases and one lakh deaths.
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