Light ahead, but at the end of a tunnel: Economic Survey is sanguine and cautious–Economic Times–12.08.2017

Volume II of the Economic Survey holds out bright light at the end of a pretty dark tunnel: medium-term prospects are bright, but short-term ones are dim. Growth would be lower than 7.5% in the current fiscal, inflation would stay below 4%, state governments would find it difficult to spend on capital formation after using up their fiscal space to take on the debt of bankrupt power utilities and distressed farmers. The Centre is doing its best to prop up the flagging investment ratio, but is constrained to meet its fiscal deficit target in a year of low nominal GDP growth and promised spending on higher civil service pay. To help things along, the RBI must slash its policy rates aggressively and the ongoing process of tackling the twin balance-sheet (TBS) problem must continue apace. And the government must boost farm incomes by removing constraints on farm prices such as export bans, stocking limits and marketing restrictions.

The Survey’s diagnosis of the economy’s ills and its prescriptions are unlikely to blind observers of the economy with any dazzling originality. That does not mean they are not sound, although some qualifications apply. Is the goods and services tax (GST) guaranteed to keep prices in check? Improved tax compliance, on which higher tax collections are predicated, will mean that many habitual evaders would start paying tax. As the share of indirect tax in GDP goes up, prices would bump up in the year of GST implementation. The Survey is right when it says that remunerative prices for farmers and low inflation are convergent goals — but only eventually; in the short run, reducing distress on the farm would mean higher food prices.

The Survey attributes most of the stress in the power sector to large additions to capacity and the welcome drop in renewable power prices. The hard reality is that continued power theft and paucity of the political will needed to make people pay for the power they consume are at the core of the crisis in power. Volume II carries forward the tradition of the Survey serving as an aggregator of relevant research and guide to applied economics for students of all ages.

via Light ahead, but at the end of a tunnel: Economic Survey is sanguine and cautious

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