CHENNAI: The Economic Survey 2015-16 on Friday projected India’s economic growth at 7-7.75 per cent this fiscal and next, lower than the 8.1-8.5 per cent estimated earlier. The much-anticipated 8-10 per cent growth is a good 2–5 years away.
India is among the highest-growing economies, but it urgently needs to push reforms like GST, phase out subsidies for the ‘better-off’, stick to fiscal deficit targets and widen tax base, the Survey said. Currently, just 5.5 per cent of earning individuals pay taxes, but the target should be 20 per cent, it noted.
Tabled by Finance Minister Arun Jaitley in Parliament, the Survey said not just banks, but also corporates need to clean up their balance sheets as together, they have been stalling private investment and stifling growth.
The Survey threw up some startling facts. A whopping Rs 1 lakh crore worth subsidies on just six commodities including gold, electricity, LPG and small savings go to the ‘better-off’, it said and added that as much as 80 per cent of gold is consumed by the top 20 per cent of the population, though it is taxed 1–1.6 per cent, compared to 26 per cent for normal goods. Strikingly, any tax incentives on savings benefit not the middle or uppermiddle class but the super-rich comprising 1-2 per cent of the Indian income distribution.
The Economic Survey, usually released a day before the Budget, broadly hints at the government’s policy direction and going by this year’s Survey, a revision on direct and indirect taxes cannot be completely ruled out.
Inflation is projected to decline to 4.5–5 per cent during FY17, well within the RBI’s target, while chief economic advisor Arvind Subramanian felt there was scope to lower interest rates.
Meanwhile, setting a three-point agenda to propel growth, the Survey called for moving away from anti-market policies to pro-competition, investing more in health and education and agriculture. The labour market challenge, going forward, will be to generate numerous “good jobs” besides dealing with regulatory issues that force firms to opt for contract workers due to slow labour reforms.
Amid the Rs 1.02 lakh crore bill on the Seventh Pay Commission and another Rs 1.8 lakh crore towards bank capitalisation, the Survey favoured a review of the fiscal deficit target. Though it believed that the 3.9 per cent target will be met, next fiscal will be “challenging”. Hence, it suggested narrowing the deficit by 0.2–0.3 per cent each year over the next five years.
It means the 3 per cent deficit target will be met by March 2021, instead of FY18. India needs to prepare for a major currency readjustment in Asia, the Survey hinted and called for sweeping reforms in the fertiliser sector, including deregulation of the urea market.
Less Bang for the Buck
The Survey favoured scrapping tax benefits for savings like PPF and taxing investments during withdrawal. According to it, such incentives are availed of largely by the ‘well-off’. The emerging wisdom was that savings should be taxed only at the point of contribution or withdrawal, the latter being the best international practice on several counts.
Ease Exit Barriers
Invoking the Charkravyuha legend of the Mahabharata — the ability to enter but not exit — the Survey said India has made great strides removing the barriers to the entry of firms, talent, and technology into the economy. But less progress has been made with respect to exit.
GST to have limited impact
GST rollout will usher in “unprecedented reform” in global tax history and its implementation will have limited impact in furthering the broader objective of citizen participation, state building and democratic accountability. “There have also been some disappointments — especially the Goods and Services Tax — which needs to be retrieved going forward,” said the Survey tabled by Finance Minister Arun Jaitley in Parliament.