Economic Survey 2017-18
- Economic Survey
The economy is set to grow at 7-7.5% in the next financial year on the back of reviving exports and investment even as the negative effects of demonetisation and the teething troubles of the Goods and Services Tax recede, thereby re-instating India as the world’s fastest growing major economy.
GDP growth in the current financial year- 6.75%, higher than the 6.5% estimated by the Central Statistics Office.
- Women & Agriculture
A rise in migration of men from rural to urban areas causes ‘feminisation’ of agriculture sector, as the number of women in multiple roles such as cultivators, entrepreneurs and labourers is increasing.
Women had a decisive role in ensuring food security and preserving local agro-biodiversity.
Rural women are responsible for the integrated management and use of diverse natural resources to meet the daily household needs
The Survey observed that crucial role of women in agricultural development and allied fields was a fact long taken for granted.
For sustainable development of agriculture and rural economy, the contribution of women to agriculture and food production cannot be ignored,
As per Census 2011, out of total female main workers, 55% were agricultural labourers and 24% cultivators.
However, only 12.8% of the operational holdings were owned by women, which reflected the gender disparity in ownership of landholdings in agriculture.
With women predominant at all levels — production, pre-harvest, post-harvest processing, packaging, marketing — of the agricultural value chain it is imperative to adopt gender specific interventions.
An ‘inclusive transformative agricultural policy’ should aim at gender-specific interventions to raise productivity of small farm holdings, integrate women as active agents in rural transformation, and engage men and women in extension services with gender expertise.
The Economic Survey flagged the risks from rising oil prices.
“Average oil prices are forecast by the IMF to be about 12% higher in 2018-19, which will crimp real incomes and spending — assuming the increase is passed on into higher prices
A $10 per barrel increase in oil prices results in a slowdown in GDP growth by 0.2-0.4%, and a rise in inflation of 0.3-0.4%.
Consumer price index based inflation, the central bank’s primary yardstick for monetary policy formulation, accelerated to a 17-month high of 5.21% in December, driven by surging food prices.
The Goods and Services Tax has resulted in a 50% increase in the number of indirect taxpayers.
The GST paved way to reveal new data on key aspects such as inter-State trade, State-wise exports, and the extent of formalization in the economy.
GST had resulted in a significant increase in voluntary compliance, with about 1.7 million registrants who were below the threshold annual turnover limit of Rs. 20 lakh choosing to register for GST nevertheless.
The survey put to rest States’ concerns about declining revenues under GST.
The distribution of the GST base among the States is closely linked to the size of their economies, allaying fears of major producing States that the shift to the new system would undermine their tax collections.
India’s internal trade is about 60% of GDP, even greater than estimated in last year’s Survey and comparing very favourably with other large countries.
GST data showed that the formal sector in India was larger than earlier thought.
Formality defined in terms of social security provision yields an estimate of formal sector payroll of about - 31% 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%.
- Stock Exchange
The rise in stock market indices have to be monitored closely and investors need to exercise caution.
The constant rising stocks is considered as a macroeconomic threats as the Survey calls “a classic emerging market ‘sudden stall’ induced by sharp corrections to elevated stock prices.
The Survey warns against “sanguineness about its sustainability”. A correction in the stock market, besides triggering capital outflows, could force policymakers to raise interest rates, choking off the nascent recovery.
India will require investments of about $4.5 trillion by 2040 to develop infrastructure to improve economic growth and community well-being.
India can meet around $3.9 trillion infrastructure investment out of $4.5 trillion. The cumulative figure for India’s infrastructure investment gap would be around $526 billion by 2040,
Reasons for massive under-investment in infrastructure sector:
• Collapse of public private partnerships, especially in power and telecom projects.
• Stressed balance sheets of private companies.
• Issues related to land and forest clearances.
The need of the hour is to fill the infrastructure investment gap with financing from private investment, institutions dedicated to infrastructure financing like National Infrastructure Investment Bank and also global institutions like Asian Infrastructure Investment Bank and New Development Bank which are focusing more on sustainable development projects and infrastructure projects.
There was scope for developing the shipbuilding industry, currently dominated by South Korea, China and Japan, in India. This will not only create a strong manufacturing base but also generate millions of jobs.
There were 482 projects in road transport and highways; 43 projects face cost overruns and 74 projects time overruns.
The share of Indian Railways in freight movement has been declining over a period of time primarily due to non-competitive tariff structure.
The telecom sector is going through a “stress period with growing losses, debt pile, price war, reduced revenue and irrational spectrum costs.
The tax department is the largest litigant with almost 85% of direct tax cases arising out of its appeals but the Department unambiguously loses 65% of its cases.
There were approximately 1.37 lakh direct tax cases and 1.45 lakh indirect tax cases under consideration by the Income Tax Appellate Tribunal, high courts and Supreme Court (March 2017)
Together, the claims for indirect and direct tax stuck in litigation amounted to 4.7% of GDP (March 2017)
The government’s persistence with litigation despite high rates of failure was increasing the workload of the judiciary and adding to delays and pendency of cases.
This results in taking a severe toll on the economy in terms of stalled projects, mounting legal costs, contested tax revenues, and reduced investment”.
The tax department would gain from a reduction in appeals pursued at higher levels of the judiciary besides leading to a reduction of workload on high courts and the Supreme Court.
More than Rs. 52,000 crore worth of government infrastructure projects have been stalled by various orders of the courts.
The Ministries of Power, Roads and Railways have been the hardest hitwhere the project costs have risen by close to 60% during the stalled period.
The Survey found that dedicated subject-matter courts could have “profound benefits” as seen in the apex court’s recent experiment with constituting an exclusive bench for taxation produced impressive results.
The Economic Survey has suggested that the Goods and Services Tax (GST) Council should comprehensively review ‘embedded taxes’ and expeditiously eliminate the embedded export taxes to boost India’s manufacturing exports.
The large component of Rs. 6,000-crore package for the apparel sector announced in June 2016 was rebates on state levies to offset indirect taxes levied by the states (the VAT) that were ‘embedded’ in exports. The Survey found that the package in fact increased exports of ready-made garments made of man-made fibres.
High cost of logistics was impacting competitiveness in domestic and global market, it suggested the formulation of a National Integrated Logistics Policy to bring in greater transparency and enhance efficiency in logistics operations.
Improving logistics sector has huge implication on exports and it is estimated that a 10% decrease in indirect logistics cost can increase 5-8% of exports.
International exports of states, the first in India’s history, showing that five states — Maharashtra, Gujarat, Karnataka, Tamil Nadu and Telangana — in that order account for 70% of India’s exports.
Data on international exports of States (for the first time ) suggests a strong correlation between export performance and States’ standard of living,
The Survey did a firm-level analysis on exports (for the first time ) and found that export concentration by firms was much lower in India than in the U.S., Germany, Brazil, or Mexico – meaning that India had no ‘exports superstars’ and that its export structure was “egalitarian” in nature.
- Savings & Investment
The current episode of investment slowdown is ongoing, and one that is impacting growth, and therefore investment revival needs to be prioritised urgently to arrest more lasting impact on growth.
The policy conclusion is urgent prioritisation of investment revival to arrest more lasting growth impacts, as the government has done with plans for resolution of bad debts and recapitalistion of public sector banks.
To help India regain 8-10% growth, it suggested that the measures, that need to be taken soon, should include easing further the cost of doing business and creating a clear and stable tax and regulatory environment.
The government must create a conducive environment for small and medium industries to prosper and invest to help revive private investment.
The Survey raised concerns over slowdown in savings saying that too was ongoing. However, investment slowdown was more detrimental to growth than savings slowdown.
- Household Savings
The pattern of household savings was significantly different in 2016-17 as compared with the previous five years.
Due to the demonetisation exercise, Indian households are moving away from savings in cash to financial assets.
The overall financial savings of the households increased more than 20% in 2016-17, which was significantly higher than the growth witnessed in any of the preceding five years, there was a decline in savings in the form of currency by more than 250% (of about Rs. 5 lakh crore).
The savings of households were channeled into financial assets like bank deposits, life insurance funds and shares and debentures.
The growth of savings in mutual funds registered a phenomenal increase of more than 400% over and above the growth of 126% witnessed in 2015-16.
The savings in the form of mutual funds registered more than 11-fold increase and this happened in a period when the BSE Sensex increased by an average of just about 1.5% per annum.
The story on overall savings and investment rate in the economy was not ‘heartening’.
The investment rate as a share of GDP in the economy declined by nearly 5.6 % points between 2011-12 and 2015-16.
The savings rate declined by 2.5 % points between 2011-12 and 2013-14.
India’s investment, savings slowdown is unusual, never happened like this before.
- Climate Change and Farm Income
The farmer income losses from climate change could be between 15% and 18% on an average, rising to anywhere between 20%-25% in unirrigated areas of the country.
At current levels of farm income, that translates into more than Rs. 3,600 per year for the medium farm household.
Extreme temperature shocks reduce farmer incomes by 4.3% and 4.1% during kharif and rabi respectively, whereas extreme rainfall shocks reduce incomes by 13.7% and 5.5%.
The Prime Minister’s goal of doubling farmers’ incomes — increasingly runs up against the contemporary realities of Indian agriculture, and the harsher prospects of its vulnerability to long-term climate change.
India needed to expand irrigation – and do so against a backdrop of rising water scarcity and depleting groundwater resources.
- Irrigation in India
In the 1960s, less than 20% of agriculture was irrigated, in 2017, it is mid-40s.
The Indo-Gangetic plain, and parts of Gujarat and Madhya Pradesh are well irrigated. But parts of Karnataka, Maharashtra, Madhya Pradesh, Rajasthan, Chhattisgarh and Jharkhand are still extremely vulnerable to climate change on account of not being well irrigated.
Fully irrigating Indian agriculture, that too against the backdrop of water scarcity and limited efficiency in existing irrigation schemes, will be a defining challenge for the future.
Technologies of drip irrigation, sprinklers and water management — captured in the “more crop for every drop” campaign — may well hold the key to future Indian agriculture,”
The power subsidy needs to be replaced by direct benefit transfers so that power use can be fully estimated and water conservation furthered.
India currently spends far below its economic capacity on research, according to Economic Survey.
India spent only 0.5% of its Gross Domestic Product (GDP) on research and development in 2015.
In comparison, China and the U.S. spent 1% and 2.5%, when their per capita GDP were similar to that of India. Currently China’s GDP is five times and the U.S.’ about eight times that of India.
There is a high need to increase the R&D, and perhaps we need to do this much more in mission mode. It’s also very important to have a scientific temper of debate and openness without religious obscurantism.
In the last two decades, India had improved its output of scientific publications and was currently sixth in the world. However, in quality, India was still woefully short.
For instance, in 2001, China had 174 high quality scientific publications and India 103. By 2011, China had soared ahead at 980 and India was still only at 153.
India needed to unveil programmes in mission mode.
This would be through building on existing strengths in astronomy and international collaboration. The government also ought to be reaching out more to scientists based abroad.
There were more than 100,000 people with PhDs, who were born in India but now live and work outside. With the strength of India’s economy and growing anti-immigrant atmosphere in some Western countries, India has an opportunity to attract back more scientists.
There has been an increase in the number of Indian scientists returning to work in India during the last five years, but the numbers are still modest.
The survey highlighted that two important areas that need to be looked at are the rental segment and vacancy rates.
The government needs to address issues such as rent control and unclear property rights rather than focusing on building more homes under its scheme to provide ‘Housing for All’ by 2022.
The Survey pointed out that India’s housing requirements are complex but till now policies had been mostly “focused on building more homes and on homeownership. There is an urgent need to take a more holistic approach that takes into account rentals and vacancy rates.
The policymakers to pay more attention to contract enforcement, property rights and spatial distribution of housing supply versus demand. The policies on housing needed to recognise that India has an increasingly fluid population.
A successful housing policy should enable the ability to move to, between and within cities as job opportunities arise.
It should also deliver vertical mobility, so that an aspirational population can climb the socio-economic ladder
Rental housing is important for both horizontal and vertical mobility as it allowed people to access suitable housing without actually having to buy it.
The share of rental housing has actually been declining in Indian cities since independence from 54% in 1961 to 28% in 2011.
The renting accommodation is more prevalent in urban areas than in rural.
The share of households living in rented houses was only 5% in rural areas, but 31% in urban areas. (Census 2011)
The number of people defecating in the open in rural India had reduced to less than half of what it was in 2014, - claiming success in rural sanitation due to Swachh Bharat Mission (SBM),
The survey conducted by Ministry of Drinking Water and Sanitation, the number of persons defecating in open in rural areas, which was 55 crore in October, 2014, declined to 25-crore in January, 2018.
296 districts and 3,07,349 villages all over the India have been declared as Open Defecation Free (ODF).
Eight States and two Union Territories, i.e., Sikkim, Himachal Pradesh, Kerala, Haryana, Uttarakhand, Chhattisgarh, Arunachal Pradesh, Gujarat, Daman & Diu and Chandigarh have been declared as ODF completely.
More than 90% of the individuals, who had access to toilets, were using them in 2016 and 2017. ( NSSO & QCI Survey).
The survey underlines that the quality of sanitation and hygiene positively impacts health outcomes.
According to UNICEF, the lack of sanitation is responsible for the deaths of over 100,000 children in India annually and for stunting of 48 % children.”
The households in ODF districts had “significantly better health indicators (Bill and Melinda Gates Foundation).
The Survey also says that there are economic benefits in becoming open-defecation free.
The lack of sanitation facilities costs India over 6-% of GDP (WB).
UNICEF estimated that a household in an ODF village in rural India saves Rs. 50,000 ($800) every year ( The Financial and Economic Impact of SBM in India 2017).
- Renewable Energy
The government needs to revisit subsidies and incentives for renewables because its tariff is approaching grid parity and some discoms are insisting for renegotiation of already inked PPAs.
The Survey also suggested setting up a payment guarantee fund or a foreign exchange fund for renewable developers to reduce risks along with affordable financing.
There is a case for revisiting the subsidies and incentives being given to the renewable energy sector.
The tariff’s free fall last year would result in a situation where renewables would be cheaper than coal-based thermal power and thus would affect thermal plants to create another lot of bad loans or NPAs.
The survey also reminds that renegotiating the tariffs could result in risk for investments worth Rs. 48,000 crore. (CRISIL 2017).