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Economic Survey and Challenges in Indian Economy

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Economic Survey and Challenges in Indian Economy ECONOMIC SURVEY AND CHALLENGES IN INDIAN ECONOMY Ramesh Chand Member, NITI Aayog The year 2015-16 has been a very difficult year for the Indian economy. The global environment remained unfavourable for exports and slowdown in the major economies, put downward pressure on the growth rate of Indian economy as well. India faced four consecutive unfavourable weather seasons which hit agricultural and rural economy hard. The country received below normal monsoon rain and experienced drought in many parts during 2014 and again in 2015. The crop output during rabi season last year (2014-15) suffered due to untimely and excessive rainfall, hailstorms and freak weather. Again in year 2015-16, many parts of the country remained highly deficit in winter rains. The temperature has been ruling much higher than normal. As a result, crop output in rabi season of year 2015-16 is expected to be lower than the normal. The rainfall deficiency has not only affected agricultural output, it has also affected other economic activities due to low availability of water. The adverse climatic factors not only affected output of agriculture sector but also caused adverse effect on non-agriculture sector due to depressed demand in rural India. If agriculture output was normal, it would have pushed the growth rate in total GDP up by 0.30 percentage points. Despite these odds the growth rate in total GDP is estimated to accelerate to 7.6 per cent. It is remarkable that despite negative growth of agriculture output during 2014-15 and below normal output in year 2015-16 food inflation has remained below 6 per cent. Second, the series of adverse weather shocks caused only moderate effect on output of agriculture sector. This could be possible due to improved resilience of agriculture sector to external shocks. The survey highlights the long term challenges facing agriculture and points to importance of reforms needed in the sector from fiscal as well as sustainability angle. It highlights alternative options to ensure remunerative prices to farmers improve agricultural R&D and channelize fertiliser subsidy. Agriculture sector also suffers from low efficiency of resource use, fluctuations in growth, and injudicious use of water, nutrients and soil. Public investments in irrigation are not showing desired results. PMSKY offers an opportunity to address some of these issues. The survey is optimistic on containing fiscal deficit at 3.9 per cent in the next fiscal year; however, fiscal pressure due to implementation of recommendations of the 7th Pay Commission is an important concern. India is passing through a stage where it enjoys demographic dividend. If youth is not appropriately employed the dividend may change into disaster. Thus utmost emphasis need to be given on raising growth in manufacturing, reforming labour laws and 1 imparting skill among the youth to create employment avenues matching the growth in workforce. The survey describes importance of Make in India and Skill India to meet the twin objective of growth and employment that meet aspirations of youth. While Make in India initiative is getting attention of global investors its progress and success will depend upon ease of doing business in India. India is fast moving to become a middle income country. Accordingly, the aspiration and expectations of people of India from the government are rising. After meeting the basic requirement of Bijli, Sadak, Pani the emphasis need to be added on Shiksha and Swasthya. Thus, the shift in public policy and investments towards social sector, as highlighted in the Survey, is well placed. The survey emphasises spread of JAM (Jandhan Yojana, Aadhar and Mobile) throughout the country for efficient delivery of public facility and for direct benefit transfers of public support and subsidies. This has already yielded significant benefits and checked leakages in the delivery system. The Economic Survey for the first time devotes a chapter to tax concessions and subsidies availed by well off section of the society. These subsidies are substantial in magnitude. A rethinking is needed on such concessions and subsidies to the relatively better off section of the population. Tax to GDP ratio in India has remained quite low. It is half of the average of the OECD countries. This is constraining expansion of expenditure in social sector, infrastructure, and public utilities and also affects fiscal health. India should not remain outlier in terms of tax collection. The Survey provides a very comprehensive account of state of India’s economy and also charters a clear roadmap for sustainable, stable and inclusive growth and development of Indian economy. Disclaimer: NITI blogs do not represent the views of either the Government of India or NITI Aayog. They are intended to stimulate healthy debate and deliberation. 2 .
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