The Economic Survey 2017-18 was tabled in the Parliament on January 29, 2018 by Union Finance Minister Arun Jaitley.
Major reforms were undertaken in 2017 including the launch of the transformational Goods and Services Tax (GST) in July. The survey notes that with a policy change of such scale, scope and complexity, the transition unsurprisingly encountered challenges of policy, law and information technology systems, which especially affected the informal sector. However, it also states that prompt responses followed to rationalise and reduce rates and simplify compliance burdens.
Key Highlights of the Survey
State of the Economy
The transformational Goods and Services Tax (GST) was launched at the stroke of midnight on July 1, 2017.
The Twin Balance Sheet (TBS) problem was decisively addressed by sending the major stressed companies for resolution under the new Indian Bankruptcy Code and implementing a major recapitalisation package to strengthen the balance sheets of public sector banks.
As a result of these measures, the economy accelerated in the second half of 2017.
This is expected to boost real GDP growth to 6.75 per cent for the year as a whole and to 7-7.5 per cent in 2018-19, re-instating India as the world’s fastest-growing major economy.
Policy vigilance will be necessary in the coming year, especially if high international oil prices persist or elevated stock prices correct sharply, provoking a ‘sudden stall’ in capital flows.
The agenda for next year includes:
• Stabilising the GST
• Completing the TBS actions
• Privatizing Air India
• Removing threats to macroeconomic stability
Over the medium term, three areas of policy focus stand out:
• Employment: Finding good jobs for the young and burgeoning workforce, especially for women.
• Education: Creating an educated and healthy labour force.
• Agriculture: Raising farm productivity while strengthening agricultural resilience.
A new look of Indian Economy through GST
The Goods and Services Tax (GST) embodies and heralds a radical alteration and enlargement in the understanding of the Indian economy. The preliminary analysis of the information has led to the following findings:
• There has been a 50 per cent increase in the number of indirect taxpayers and a large increase in voluntary registrations, especially by small enterprises that buy from large enterprises and want to avail themselves of input tax credits.
• The data on the international exports of states suggests a strong correlation between export performance and states’ standard of living.
• India’s exports are unusual, as the largest firms account for a much smaller share of exports in comparison to other nations.
• India’s internal trade is about 60 percent of GDP, even greater than estimated in last year’s Survey and comparing very favourably with other large countries.
• India’s formal sector, especially formal non-farm payroll, is substantially greater than currently believed:
- Formality defined in terms of social security provision yields an estimate of formal sector payroll of about 31 per cent of the non-agricultural work force.
- Formality defined in terms of being part of the GST net suggests a formal sector payroll share of 53 per cent.
Investment and Saving Slowdowns and Recoveries:
• India’s unprecedented climb to historically high levels of investment and saving rates in the mid-2000s has been followed by a pronounced, albeit gradual, decline.
• This current episode of investment and saving slowdown is still ongoing.
• Findings of the study on the pattern of investment and saving slowdowns as well as recoveries in India:
- Investment slowdowns have an impact on growth but not necessarily saving.
- Recoveries from investment slowdowns, especially those associated with balance sheet difficulties, as in India, tend to be slow.
- The study also noted that mean reversion or some degree of automatic bounce-back is absent so deeper the slowdown, the slower and shallower the recovery.
Climate, Climate Change, and Agriculture
The survey observes a long-term trend of rising temperatures, declining average precipitation and increase in extreme precipitation events.
Some of the major findings:
- One major finding, which will have significant implications, is that the impact of temperature and rainfall is felt only in the extreme, which is when temperatures are much higher and rainfall is 0significantly lower and the number of ‘dry days’ are greater than normal.
- Second is that these impacts are significantly more adverse in unirrigated areas or rainfed areas in comparison to irrigated areas.
Applying these estimates to projected long-term weather patterns implies that climate change could reduce annual agricultural incomes in the range of 15 percent to 18 percent on average, and up to 20 percent to 25 percent for unirrigated areas.
The survey observes that minimising susceptibility to climate change requires drastically extending irrigation through efficient drip and sprinkler technologies and replacing untargeted subsidies in power and fertilizer by direct income support.
Economic Survey 2017-18: Ease of Doing Business’ Next Frontier-Timely Justice
Gender and Son Meta-Preference
The survey observes that India’s performance in 14 out of the 17 indicators of women’s agency, attitudes, and outcomes has improved over the last 10-15 years.
• On seven of them, the improvement has been such that India’s situation is comparable to other countries after accounting for levels of development.
• The survey notes that gender outcomes exhibit a convergence pattern, improving with wealth to a greater extent in India than in similar countries so even areas where it is lagging is expected to improve with time.
• In other indicators such as employment, use of reversible contraception, and son preference, India has still a long way to go, as this cannot be attained through development.
• Within India, there is significant heterogeneity, with the North-Eastern states consistently out-performing others and not because they are richer. The states in the hinterland are seen to be lagging behind. The southern states, however, show the most surprising figures, as some of them do less well than their development levels suggest.
• The meta-preference manifesting itself in fertility stopping rules contingent on the sex of the last child notionally creates “unwanted” girls, who are estimated to be at about 21 million.
The government’s Beti Bachao, Beti Padhao and Sukanya Samridhi Yojana schemes and mandatory maternity leave rules are aimed to improve the same situation.
Transforming Science and Technology in India
• The survey notes that India under-spends on research and development (R&D), even relative to its level of development.
• It states that the doubling of R&D spending is necessary and much of the increase should come from the private sector and universities.
• India should also invest in educating its youth in science and mathematics, reform the way R&D is conducted, engage the private sector and the Indian diaspora and take a more mission-driven approach in areas such as dark matter, genomics, energy storage, agriculture, mathematics and cyber-physical systems.
• Vigorous efforts to improve the 'ease of doing business' need to be matched by similar ones to boost the 'ease of doing science'.