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Economic Survey predicts 8.1-8.5% growth in 2015-16, says double digit trajectory possible

 
The Economic Survey 2014-15 presented by Finance Minister Arun Jaitley to the Lok Sabha today, a day ahead of his Budget for the coming fiscal year, said that the economy was poised for a growth of 8.1 to 8.5 percent at market prices in 2015-16.
 
Asserting that the economy was looking up, with brighter prospects amongst the world's major economies today, the survey said that the clear political mandate for reform and a benign external environment now was expected to propel India onto a double digit trajectory.
 
It said that the economy appeared to have now gone past the economic slowdown, persistent inflation, elevated fiscal deficit, slackening domestic demand, external account imbalances and oscillating value of the rupee.
 
The survey took into consideration of the recent change of base year  by the Central Statistics Office of the National Accounts series from 2004-05 to 2011-12 while projecting its growth estimate for 2015-16.
 
It said the growth rate in GDP at constant (2011-12) market prices in 2012-13 was 5.1 per cent, which increased to 6.9 percent in 2013-14 and it is expected to further increase to 7.4 per cent in 2014-15 (according to advanced estimates). 
 
The change in methodology by the Central Statistics Office has also introduced the concept of Gross Value Added (GVA) at the aggregate and various sectoral levels, it noted.
 
According to the survey, the expectation for such a growth rate is also due to a number of reforms that have already been undertaken and more that are being planned for.  
 
It mentioned some of these reform measures such as deregulation of diesel price, taxing energy products, replacing cooking gas subsidy by direct transfer on national scale, issuance of an ordinance to reform the coal sector via auctions and increasing the foreign direct investment (FDI) caps in defence.
 
The document also commended the far-reaching changes brought about on the issue of sharing of revenues between the Centre and States as recommended by the 14th Finance Commission.
 
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The report said the decline in inflation by over 6 percentage points since late 2013 and the reduction of the current account deficit (CAD) from a peak of 6.7 per cent of GDP in the third quarter of 2012-13 to about one per cent in the coming fiscal year had made India an attractive investment destination well above most other countries.
 
The expected high growth rate in the coming year in the favourable economic environment has created a historic moment of opportunity to propel India onto a double-digit growth trajectory to attain the fundamental objective of  “wiping every tear from every eye” of the vulnerable and  poor people of the country, it said.
 
The survey said this also provided an opportunity to the increasingly young, middle-class and aspirational India to realize its full potential. As the new Government is to present its first full year budget, the Economic Survey said that it appeared that India had reached a "sweet spot" and that there was a scope for "big bang reforms" now.
 
The report said the growth estimates of over 8 per cent for the coming year was based on expectations that the monsoon would be favourable,  as it was forecast to be normal, compared to last year. 
 
However the growth rate in Gross Value Added (GVA) at basic prices in agriculture is projected to decline from 3.7 per cent in 2013-14, an exceptionally good previous year from the point of view of rainfall, to 1.1 per cent in 2014-15, the current year with not-so-favourable monsoon.   
 
The survey drew attention to certain other "stagnating or declining elements" of the economy in the recent past.
 
It said that the growth in 2014-15 was largely driven by domestic demand. "There is hardly any external support to growth in 2014-15, as the growth in exports is projected to be only 0.9 per cent and the growth rate of imports, around (-) 0.5 per cent. The deceleration in imports owe substantially to the sharp decline in international oil prices in the current year that compressed the oil import bill," it said.
 
The survey also said that there had been a decline in the rate of gross domestic saving, from 33.9 per cent of the GDP in 2011-12 to 31.8 per cent in 2012-13 and further to 30.6 per cent in 2013-14, caused majorly by the sharp decline in the rate of household physical savings.
 
It said that the investment rate over the past years, as measured by gross capital formation (GCF) as a percentage of GDP, declined from 38.2 per cent in 2011-12 to 36.6 per cent in 2012-13 and further to 32.3 per cent in 2013-14.
 
On investments, the document said that, while private investment must remain the primary engine of long-run growth, the public investment, especially in the railways, would have to play an important role, at least in the interim, to revive growth and to deepen physical connectivity.
 
The report prescribed what it called a golden rule of fiscal policy, saying that governments are expected to borrow over the cycle only to finance investment and not to fund current expenditures. It urged the government to aim at bringing down the centre’s fiscal deficit down to 3 per cent of GDP.
 
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The survey said price subsidies did not appear to have had a transformative effect on the living standards of the poor, though they have helped poor households to weather inflation and price volatility.   
 
It said that a close look at price subsidies, which are estimated to be about Rs 3,78,000 crore, about 4.24 per cent of GDP, revealed that they may not be the government’s best weapon for fighting poverty.  
 
Dwelling upon various subsidies to the poor, the survey stated that price subsidies were often regressive. It said an analysis of the current subsidy scheme indicated that rich households benefit more from the subsidy than poor households. 
 
Among various examples, it said that the subsidy on electricity, for example, could only benefit the relatively rich.
 
At the same time, it said that eliminating or phasing out subsidies was neither feasible nor desirable.
 
It said that adoption of the "JAM Number Trinity" -- Jan Dhan Yojana, Aadhaar and Mobile numbers --- would allow the State to deliver the subsidies to the poor in a targeted and less distorted manner.
 
The document expressed serious concern that several projects had been stalled and that this tendency had increased over the past years. It, however, expressed happiness that such stalling of projects seemed to have plateaued.  It suggested revitalizing public private partnership model of investment.
 
On the manufacturing vs services debate, the survey said both were equally important for the growth of the economy in the Indian context.
 
Similarly, “Skilling India” is no less important and deserved an equal attention as the other important goal of “Make in India “, it said
 
In a chapter on a Common National Market for Agricultural Commodities, the survey, without drawing any conclusions, suggested that there may be a Constitutional provision used to regulate trading in specified agricultural commodities to create a National Common Market.
 
In an exclusive chapter on the Fourteenth Finance Commission (FFC), the survey quoted both Jawahar Lal Nehru, the first Prime Minister of the country and current Prime Minister Narendra Modi and said that adoption of the recommendations of the FFC and the creation of Niti Aayog earlier would further take forward the Government’s vision of cooperative and competitive federalism.
 
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