Highlights of Economic Survey 2016-17
The Economic Survey 2016-17 was published in January 2017. Here I have posted the main points in this year’s Economic Survey which you should focus on from Prelims as well as Mains standpoint.
- Credit rating agencies like Stand & Poor have displayed seemingly differently yardsticks towards India vis-a-vis China.
It says “In December 2010, it increased China’s rating from A+ to AA and it has never adjusted it since, even as the credit boom has unfolded and growth has experienced a secular decline.
In contrast, India’s ratings have remained stuck at the much lower level of BBB-, despite the country’s dramatic
improvement in growth and macro-economic stability since 2014.
These contrasting experiences raise a question: can they really be explained by an economically sound methodology?”
- Real GDP growth in the first half of the year was 7.2 percent.
The main problem was fixed investment, which declined sharply. On a positive note, consumption improved buoyed by 7th Pay Commission recommendations.
- Inflation this year has been characterized by two distinctive features.
The Consumer Price Index (CPI)-New Series inflation, which averaged 4.9 per cent during April-December 2016, has displayed a downward trend since July. The second distinctive feature has been the reversal of WPI inflation, from a trough of (-)5.1 percent in August 2015 to 3.4 percent at end-December 2016, on the back of rising international oil prices.
- Developments on the Trade front
The current account deficit has declined to reach about 0.3 percent of GDP in the first half of FY2017. Foreign exchange reserves are at comfortable levels, having have risen from around US$350
billion at end-January 2016 to US$ 360 billion at end-December 2016. The trade deficit declined by 23.5 per cent in April-December 2016 over corresponding period of previous year. During the first half of the fiscal year, the main factor was the contraction in imports, which was far steeper than the fall in exports. But during October-December, both exports and imports started a long-awaited recovery, growing at an average rate of more than 5 per cent.
- Impact of Demonetisation on the Economy
The Economic Survey 2016-17 looked at the demonetisation impact from 5 indicators:
- Agricultural (rabi) sowing;
- Indirect tax revenue, as a broad gauge of
production and sales;
- Auto sales, as a measure of discretionary consumer spending
- Real credit growth; and
- Real estate prices
Contrary to early fears, as of January 15, 2017 aggregate sowing of the two major rabi crops—wheat and pulses (gram)–exceeded last year’s planting by 7.1 percent and 10.7 percent.
Passenger car sales and excise taxes bear little imprint of demonetisation; property markets in the major cities and sales of two wheelers show a marked decline. It estimates an adverse impact of 0.5% percent in GDP growth during 2016-17 as a result of the demonetisation exercise. It states if it’s not possible to substitute cash by other forms of transactions, chiefly, cashless and digital then the impact of demonetisation will be higher.
- Outlook for 2017-18
Economic Survey predicts real GDP growth to be in the 6.75 to 7.5 percent range in FY 2018. Even under this forecast, India would remain the fastest growing major economy in the world.
The increase in the tax to GDP ratio of about 0.5 percentage points in each of the last two years, owing to the oil windfall will disappear. In fact, excise-related taxes will decline by about 0.1
percentage point of GDP, a swing of about 0.6 percentage points relative to FY 2017.
There will be a fiscal windfall both from the high denomination notes that are not returned to the RBI and from higher tax collections as a result of increased disclosure under the Pradhan Mantra Garib Kalyan Yojana (PMGKY).
A third factor will be the implementation of the GST. The transition to the GST is so complicated from an administrative and technology perspective that revenue collection will take some time to reach full potential.
- Universal Basic Income (UBI)
The Economic Survey 2016-17 bats for a Universal Basic Income to replace many of the current social welfare schemes like the public Distribution Scheme (PDS) owing to the high leakages in PDS where the deserving are not getting their full entitlements under the scheme and uneven success of the scheme. It states that PDS is more successful in states like Tamil Nadu and Kerala where number of poor are less and targeting is easier as compared to states like Bihar with much higher population and number of poor people.
- Climate Change and India
Having decisively moved from a regime of carbon subsidies, India is now de facto imposing a carbon tax on petroleum products at about US$150 per ton, which is about 6 times greater than
the level recommended by the Stern Review on Climate Change.
The increase in petrol tax has been over 150 percent in India. In contrast, the governments of most advanced countries have simply passed on the benefits to consumers, setting back the cause of curbing climate change. As a result, India now outperforms all the countries except those in Europe in terms of tax on petroleum and diesel.
- Ensuring Women’s Privacy
The Economic Survey discusses in detail the disproportionate burden that falls on women and girls due to deficiencies in sanitation facilities.
This burden on women can take several forms: threat to life and safety while going out for open defecation, reduction in food and water intake practices to minimize the need to exit the home to use toilets, polluted water leading to women and children dying from childbirth-related infections, and a host of other impacts.
Women’s personal hygiene is therefore important not just for better health outcomes but also for the intrinsic value in conferring freedom that comes from having control over their bodies, a kind of basic right to physical privacy. Put differently, impeded access may well be creating “gender-based sanitation insecurity.”
- India’s Soon-to-Recede Demographic Dividend
The Economic Survey says that 2016 was a turning point in global demographic trends. It was the first time since 1950 that the combined working age (WA) population (15-59) of the advanced countries declined. Over the next three decades, the United Nations (UN) projects that China and Russia will each see their WA populations fall by over 20 percent. India, however, seems to be in a demographic sweet spot with its working-age population projected to grow by a third over the same period.
India’s demographic cycle is about 10-30 years behind that of the other countries, indicating that the next few decades present an opportunity for India to catch up to their per capita income levels.
In addition, India’s WA to NWA (Non-working age) ratio is likely to peak at 1.7, a much lower level than Brazil and China, both of which sustained a ratio greater than 1.7 for at least 25 years. Finally, India will remain close to its peak for a much longer period than other countries.
This demographic pattern will have two important growth consequences. First, it seems that the peak of the demographic dividend is approaching fast for India. The second growth consequence
relates to the distributional impacts across India. On average the poorer states today have more of a growth dividend ahead of them. This means the demographic dividend could help income levels across states converge.