Survey advocates lower taxes, quick remonetisation for faster growth
A day ahead of the tabling of India's budget for next fiscal, the latest edition of Economic Survey has called for lowering tax rates and stamp duties, quick adoption of goods and services tax and a check on over-zealous tax administration to restore higher growth.
It also said the Centre should act as a model for states on fiscal prudence by its own fiscal management.
Moreover, taking into account the possible fallout of the recent demonetisation of high value currency, the Survey has sharply cut the GDP growth for 2016-17 to 6.5 per cent, from 7.6 per cent last financial year.
"The path of fiscal prudence embarked upon by this government is critical: in itself but also as a model for the states," said the Survey authored by Chief Economic Advisor Arvind Subramanian.
The survey also advocated a Universal Basic Income (UBI) scheme as an alternative scheme for poverty reduction in place of various ongoing social welfare programmes, even as the Niti Aayog has already said India does not have the necessary financial resources for the project.
"Demonetisation has had short-term costs but holds the potential for longterm benefits," said the survey tabled in Parliament by Finance Minister Arun Jaitley, calling for follow-up actions to minimise the costs and maximise the benefits.
Areas listed include fast, demand-driven remonetisation, further tax reforms, including bringing land and real estate into GST, reducing tax rates and stamp duties, and acting to allay the anxieties on over-zealous tax administration.
"These actions would allow growth to return to trend in 2017-18, following a temporary decline in 2016-17," said the survey, while predicting the GDP to expand by 6.75-7.5 per cent in the next fiscal, with inflation already having moderated to around 3.4 per cent at December-end.
"Core inflation has, however, been more stable, hovering around 4.5 per cent to 5 percent for the year so far," the Survey said.
"The outlook for the year as a whole is for CPI inflation to be below the RBI's target
of 5 percent, a trend likely to be assisted by demonetisation," it added.
Elaborating on the rationale behind its GDP growth estimate for the next fiscal, the Survey said demonetised cash will be replenished by end March 2017 and the economy would revert to the normal thereafter.
Though it provides a detailed table on the impact of the ban on Rs 1,000 and Rs 500 notes, the Survey, however, gives no figures on the increase in deposits by way of old currency.
The survey also called for societal shifts in narratives to overcome three long-standing meta-challenges: Inefficient redistribution, ambivalence about the private sector and property rights, and improving but still-challenged state capacity.
"In the aftermath of demonetisation, and at a time of gathering gloom about globalisation, articulating and embracing those ideational shifts will be critical to ensuring that India's sweet spot is enduring not evanescent," it said.
In its first projection on India post demonetisation, the International Monetary Fund (IMF) cut its forecast for the next fiscal by 0.4 percentage points 7.2 per cent. It cut India's growth estimate for the current fiscal year by one per cent to 6.6 percent.
World Bank has also lowered the country's GDP growth estimate for this fiscal to 7 per cent, from the 7.6 per cent estimate made in June last year.
Acknowledging the demonetisation factor, the Reserve Bank of India has lowered its gross value added growth estimates for the current fiscal to 7.1 per cent from 7.6 per cent forecast earlier.
Industry chamber Ficci said it agrees with the survey's stated need to overcome the three "meta challenges" of inefficient redistribution, ambivalence about the private sector and property rights, "and the improving but still challenged state capacity".
"The growth projected for the current year is lower by quarter to half a percentage point compared to the baseline of 7 per cent. The downward pressure is on account of demonetisation," Ficci President Pankaj Patel said in a statement here.
"As the first official assessment of the impact of the demonetisation, the Economic Survey has rightly highlighted that the agriculture and informal sectors of the economy were impacted more by the note ban and thus, it would be only in the fitness of things if remonetisation is done expeditiously," said Assocham President Sunil Kanoria.
"Confederation of Indian Industry is hopeful that the Budget to be presented tomorrow would deal with the aspects of creating demand, especially through direct tax interventions on the personal income tax and corporate taxation side," said CII Director General Chandrajit Banerjee.
However Congress spokesman Ghulam Nabi Azad said noted the survey projects fall in the GDP growth rate for this fiscal post demonetisation, adding that the even the IMF has recently lowered India's GDP estimates after the measure.