FM hints at bitter pills

• Modi govt optimistic despite poor monsoon
  
• Survey stresses on low & stable inflation
  
• Major subsidies rise to 2.2% of the GDP
  
• Total expenditure at 13.1% of the GDP
  
• Industrial growth slows due to weak core sector
  
• FM may unveil several out-of-the-box ideas

New Delhi: Overcoming the sub-5 per cent GDP growth of the past two years, the Indian economy is likely to grow in the range of 5.4 to 5.9 per cent in 2014-15, even as poor monsoon and disturbed external environment remain a cause for concern. The fiscal deficit for 2013-14 was 4.5 per cent of the GDP. The total expenditure of the Central government was 13.1 per cent of the GDP, while the major subsidies went up to 2.2 per cent of the GDP. The Economic Survey tabled in Parliament a day before the General Budget, asked the government to move towards a low and stable inflation regime through fiscal consolidation, establishing a monetary policy framework and creating a competitive national market for food. As per the survey, the industry grew at 0.4 per cent last year, mainly due to contraction in mining activities and deceleration in manufacturing output. Manufacturing and mining sector GDP declined by 0.7 per cent and 1.4 per cent respectively in 2013-14.

Finance Minister Arun Jaitley, who will be presenting his maiden Budget on Thursday, is expected to administer “bitter pills,” as was done by the Railways Minister in his Rail Budget to contain fiscal deficit , though the dosage is expected to be minimal, since it is hardly a month since the Modi government has assumed office. Sources stated that the Finance Minister might bring some relief for the salaried class by doubling the income-tax exemption limit on long-term financial savings, besides announcing tax incentives in manufacturing and infrastructure.

To give a boost to the sagging economy, the FDI policy may be relaxed in several sectors including Defence, Railways and construction activities. Advocating a sharp fiscal correction, the Economic Survey said that the public finances needed to be put on a sustainable path. It said improvements on both tax and expenditure were needed to obtain high quality fiscal adjustment. The tax regime must be simple, predictable and stable. “This requires a single-rate goods and services tax (GST), fewer exemptions in direct taxes and a transformation of tax administration,” it stated.

In the social sector, the Survey said that there was a challenge to deal with multiple and sometimes overlapping programmes. A mere mark up each year in the Budget for existing programmes or starting some new programmes would not suffice.

It felt the need to revamp some of the social sector schemes like MNREGA, NRHM, SSA, etc. It said that the outlays for the different schemes did not fully translate into outcomes, owing to the poor delivery mechanism.

On the agricultural front, the Economic Survey advocated several reforms as the GDP in this crucial sector declined to 15.2 per cent during the Eleventh Plan and further to 13.9 per cent in 2013-14 (Provisional Estimates). While it still accounts for about 54.6 per cent of total employment, there has been a decline in the absolute number of cultivators, from 127.3 million to 118.7 million, which is unprecedented.

It is expected that Prime Minister Narendra Modi’s first Budget would be reform-oriented that would bring in several out-of-the-box ideas, leading to course-correction in the economy that would ultimately provide “nectar” to the people, as promised by him.