10 ECONOMIC SURVEY 2015-16: THE NEW BLUEPRINT

MUMBAI | 27 FEBRUARY 2016

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Although Indian economy

is on an upswing, it faces
downside risks from a
muted global economy,
impacting exports and
inflow of investments

We are very happy to see

that a significant section
of the commentary in
the Survey is dedicated
to the impaired financial
position of PSBs

Overall, state of
the Indian economy
is inspiring and we
look forward to
dynamic Budget
announcements

RICHARD REKHY

CHANDRAJIT BANERJEE

MAHESH GUPTA

Chief Executive Officer, KPMG India

Director General, CII

President, PHD Chamber

It is possible that we will do better

this year, and possible that we wont
Chakravyuh, as termed in the
Economic Survey. How significant
is it to allow ease of exit vis--vis
easier entry for firms?

Indian economy is closely integrated with the global economy, which is facing a
slowdown, and so the headwinds are difficult to avoid, Chief Economic Advisor
ARVIND SUBRAMANIAN told journalists in an interaction after presenting the
Economic Survey 2015-16. In this uncertain environment, monetary and fiscal
policies should aim to purchase insurance, so to speak, against the global
slowdown, he said. Edited excerpts:

ARVIND SUBRAMANIAN
Chief Economic Advisor

In the backdrop of a global

slowdown, what are the biggest
challenges facing the economy?

There is need to re-calibrate expectation because India is so entwined

with the world, which is facing a
slowdown. We must, in this uncertain environment, aim for macroeconomic stability, and monetary
and fiscal policies should aim to
purchase insurance, so to speak,
against the global slowdown.
Instead of a twin deficit problem,
like we had in 2013, we now have a
balance sheet challenge. It is one of
the most critical short-term challenges confronting the Indian
economy the impaired financial
positions of the public sector banks
and some large corporate houses
what we have hitherto characterised as the balance sheet syndrome with Indian characteristics.
How can the balance sheet issues
be addressed?

The issue is a very thorny one. It has

happened the world over. It needs a
multi-pronged approach. One of the
critical prongs is resources. Broader
public sector balance sheets should
be brought to bear on where to find
resources from. The conventional
thing will be to sell assets or issue
bonds. The suggestion we also make
is that the assets the government
has in certain regulatory institutions

Let me give an example. Say, in any

industry, you have done everything possible to remove entry barriers. Supposing 10 firms come in,
seven are efficient and three arent.
It makes sense that those three
companies should exit, as they are
using up valuable resources. There
is a need to create a situation
where those three inefficient companies can exit the sector. It is not
only for the public sector but also
for the private sector. It is a very
horizontal problem that fits the
Indian economy.

could be utilised. Why not revisit

that? We have to find creative ways
of leveraging resources to address
this challenge. If the world slows
down, we will slow down as well, as
India is becoming increasingly integrated with the world.
What explains your growth
forecast of 7.75 per cent for 2016-17?

The 7-7.75 per cent range reflects that

the range of exogenous possibilities
is also very wide: A rebound in agriculture, that could take us to the
upper end of the array, to the inter-

. WE NOW HAVE
A BALANCE SHEET
CHALLENGE. IT IS ONE
OF THE MOST CRITICAL
SHORT-TERM CHALLENGES
CONFRONTING THE INDIAN
ECONOMY THE IMPAIRED
FINANCIAL POSITIONS
OF THE PUBLIC SECTOR
BANKS AND SOME LARGE
CORPORATE HOUSES.
national crisis, that could take us to
the lower end of the array or below
that. There is also this uncertainty
that has been created by divergence
between nominal and real gross
domestic product (GDP) growth
rates, inflation projection between
four and 4.5 per cent, which is below
RBIs projection and possible low
inflation next financial year on
account of minimal effect of the
Seventh Pay Commission recom-

You have projected 8-10 per cent

growth in the medium term.
What is the rationale?

mendations,
below-potential
growth, and excess capacity, besides
stress on private sector and deflationary situation prevailing globally.
In 2015-16, the growth projection
had to be cut from 8.1-8.5 per cent
to 7.6 per cent. Does that explain
your cautious stance this year?

One way to look at it is that we have

learnt from the experience of last
year. The forecast for last year was
overoptimistic as there were two
external factors the export situation and agricultural monsoon. This
year, the assessment is based on

IN THE MEDIUM- TO
LONG-TERM, WE HAVE
TO HAVE EXPORTS AS THE
ENGINE OF GROWTH THAT
IS NECESSARY FOR US TO
ATTAIN 8-10% GROWTH
looking out at the external environment that seems to be very grim. It
is possible that we will do better this
year, and possible that we wont.
You have a chapter dedicated to
allowing easier exits, or

Basically, in the next two-five years,

we will reach eight to 10 per cent
growth. There is no contradiction in
saying that this year the world economy is weak and therefore we need
to focus on domestic demand. In the
medium to long-term, we have to
have exports as the engine of growth
that is necessary for us to attain
eight to 10 per cent annual growth.
There is a case for pursuing structural reforms like the implementation of the Goods and Services Tax.
But, there seems to be growing
uncertainty over GST?

I think GST is a temporary setback. We are very much hoping it

will be retrievable.
Is there scope for further
monetary policy easing?

There is scope for easing monetary

policy in two ways. One is to inject
liquidity to bring it in line with the
current policy rate. The second is,
given our inflation projections and
assessment, perhaps there is more
scope for easing the policy rates.

ENVIRONMENT Lack of clarity about how the govt would find the finances to achieve the sustainable development goals

Mobilising funds key to meeting climate change goals

The need to find money to achieve
the ambitious targets under the
Paris climate change agreement and
the sustainable development goals
(SDGs) was the key focus of the
2015-16 Economic Survey. The
Survey acknowledged the lack of
clarity, as yet, about how India
would find the finances to achieve
the goals it has set out for itself.
It noted, What is more important
is the mobilisation of the funds needed for realising the bold targets envisaged under both and to have a clear
action plan for implementation successful implementation of the Paris
Agreement, the SDGs and the ambitious targets set out in the INDCs
(intended nationally determined contributions) will require huge financial resources which cannot be met
through budgetary sources alone.
The section on climate change
and sustainable development did
not resonate much in the first part
of the Survey, which is seen to have
a greater imprint of the chief economic advisor (CEA). A paragraph
in that section mentioned that cli-

| For successful implementation

of the Paris Agreement, the
SDGs and the ambitious
targets set out in the INDCs,
the govt will require huge
financial resources which
cannot be met through
budgetary sources alone
| Climate change and other
resource scarcities would
require greater efficiencies
in the way fertilisers, power
and water are used
| Green finance should not be
limited only to investment
in renewable energy

WHAT THE
SURVEY SAYS

mate change and other resource

scarcities would require greater efficiencies in the way fertilisers, power and water are used. The theme of
efficient use of resources dominated
the small prescriptive bits in the
related areas of health and education as well, even as the survey

bemoaned the substantially low

investments in the social sector.
The Survey devoted a large part
of the section to merely describing
the Paris climate change agreement
and the actions India has committed to undertake under it. In that, it
shied away from a candid analysis of

the state of play in the area of environment-energy or the agreement

itself, contrary to the rest of the survey. It made the requisite and exaggerated acknowledgment of the governments loud claims that climate
justice and the principle of sustainable lifestyles had been emphasised

in the Paris agreement and that the

International Solar Alliance was a
huge achievement.
It detailed the two areas where
the National Democratic Alliance
government has done much better
than or built upon the previous
United Progressive Alliance regime
enhanced focus on solar power
and the energy-efficiency mission
of the power ministries. It gave a
miss to the other action plan that is
central to Indias climate change targets for the Paris agreement, but has
failed to take off so far forestry.
The Survey pointed out, as the
CEA has emphasised before, that
India would have to ensure that global and domestic green finance also
provides for clean coal technologies
in future a battle India partially
lost in the Paris agreement. Green
finance should not be limited only to
investment in renewable energy, as,
for a country like India, coal-based
power accounts for around 60 per
cent of installed capacity. Emphasis
should be on greening coal technology, it said.

The Survey states

the labour force
participation rate is
higher in rural rather
than in urban areas
SUNIL KUMAR SINHA
Principal Economist,
India Ratings & Research

STRUCTURE OF THE SURVEY 

Moves away from traditional style

State-of-the-art
presentation on
state of economy
Chief Economic Advisor the first volume highlights the
Arvind Subramanians sec- governments key priority
ond Economic Survey repre- areas. While the last years
sents nothing short of a Survey had separate chapters
transformation in the style on Make in India and the railin which Surveys depict ways sector, this years Survey
the state of the overall econ- has new and dedicated chapomy and the general mood ters on the agriculture, ferof the governments eco- tiliser, and power sectors and
nomic philosophy.
mother and child as its highFrom the style of presen- lights.
tation of key economic trends
While last years Survey
to the use of numerous new had coined the acronym JAM
indices, this years Survey has for Jan Dhan, Aadhaar and
changed it all. Even the Mobile as new modes of
change in the basic colour subsidy, benefits transfer and
scheme from all blue in the financial inclusion, this years
previous few years to a mix of Survey has a chapter titled
vibrant shades of brown, blue, Spreading JAM Across the
green and even violet the Economy. The chapter talks
Survey reflects the thinking about Aadhaar coverage, use
and style of
of direct benefit
Subramanian
transfer of subsihimself and that
dies and a new
of Prime Miniindex to measure
ster Narendra
states JAM preModi, too.
paredness.
The Survey
And, all of
has moved away
this is shown
from traditional
through numerways of data
ous maps of
presentation
India with shadthrough tables
ed areas repreand bar graphs
senting the stato a more modtistical variables
ern scheme of
a technique
data visualisacalled chorotion
through | Significant change pleth in modern
heavy use of
data visualisain data presentascatter diagrams,
tion lingo.
tion style from
pie charts and
True to his
colour scheme to
histograms, in
style, Subramamodern visualModis style of
nian has droppisation of graphs
promotion. The
ed catchy phracover
design | Use of icons on
ses to highlight
uses numerous
crucial issues.
the cover to
icons providThe Survey has
highlight focus
ed by a profeslikened
the
on agriculture,
sional
design
Indian economy
maternal health
agency called
in the 21st centuand power sector
Noun Project
ry
to
the
including those | Use of catchy
Chakravyuh
of a tractor, a
legend of Mahaphrases to
mother holding
bharata the
highlight trends
her infant and an
ability to enter
the Chakravyuh
electricity transbut not exit
Challenge of
mission tower,
cautioning the
Economy
speaking of the
country is facing
key focus areas | Brightly coloured
adverse conseof the current
map of India placed quences due to
government.
against a dull World the lack of a way
As if to highout for failed
map, representing
light the larger
a haven of stability ventures in a
context, the covseparate chapter,
in a gloomy
er has a brightly
The Chakravyuh
international
coloured map of
Challenge
of
landscape
India
placed
Economy.
against the largAnother key
er, but almost
feature of this
dull background of the world years Survey is the focus on
map, representing the coun- stating the current position
try as what the document on issues without prescribing
inside calls a haven of stabil- a solution. The Survey foreity in a gloomy international casts the economy would
landscape. This years Survey grow between seven per cent
is also bulkier with 543 pages and 7.75 per cent in 2016-17.
against last years 427-page
It said credibility and optiSurvey. Also, the number of mality favour sticking
chapters has gone up to 20 to next years fiscal deficit tarfrom 19.
get of 3.5 per cent of
The Survey is structured GDP. This years Survey would
in two volumes a format in also be remembered for its lituse since 1991-92. While the tle
focus
on
the
second volume with nine services sector and the
chapters is the conventional emphasis on preferential
Survey in line with the trend, trade agreements.

NEW LOOK

ECONOMIC SURVEY A SNAPSHOT

LOOK AND FEEL
| Revamped presentation style of the
Economic Survey
| Volume I is forward-looking and
more data-driven
| Identifies 10 areas for policy reforms
that can be matched with Budget
announcements
| Has been bold in suggesting lowering
of income tax threshold, instead of
pushing it upward every year

TRIVIA
| Uses a lot of new terms, following up
on 'JAM' introduced last year
| Names of chapters draw attention
Mother and Child, Chakravyuha
Challenge, More from Less
| Each chapter details extant literature
in the area before offering
solutions
| Chapter on fertiliser is the longestever on the subject in any
Economic Survey

STATE OF THE ECONOMY

| FY17 GDP expected to be in the range
of 7-7.75%. Current years at 7.6%
| Arguments to stick to fiscal
consolidation path
| But need to revisit medium-term
fiscal policy framework
| Farm prices and trade policies need
to account that India is a big market
for the world
| Twin balance sheet problem
banking stress and that of the
corporate sector hampering economy

ISSUES AND PRIORITIES

| Exit problems clogging up investment
in sectors like fertiliser, banks,
telecom
| Institutions like DRTs and ideas like
sanctification of the small block
quick exits
| Need to spread the Jan DhanAadhaar-Mobile trinity as a tech
solution in fertiliser, other subsidies

| Rationalise MSP policy and remove

wedges between retail and
wholesale prices
| Massive investment in health services
for babies and infants
| Need for reforms in the fertiliser
sector through introduction of DBT

PUBLIC FINANCE
| Remove tax incentives for small
savings, as mostly the rich benefit
from them
| Impose tax on gold since it is
hoarded by the rich
| ~1-lakh-crore subsidy going to the
rich from the government
| Fast-growth years for GDP have
led to larger inequality in India;
need for measures like wider
property tax in the context of
smart cities
| Only four per cent of Indians pay
income tax; this has to rise to about
23 per cent

PRICES & MONETARY MANAGEMENT

| Benefits of low global oil prices transient
| El Nio effect on agriculture to
continue for some more time
| Crop-wise yields in India compared
to the world are low for rice, wheat
and pulses
| Need to shift to demand-driven
agri-extension services
| Food not the only reason for low
transmission of rate cuts by RBI

OTHER SECTORAL REFORMS NEEDED

| Challenge of creating good jobs
is proving difficult
| Too many regulations have harmed job
creation worker-centric rule needed
| Competitive federalism is needed to
reduce bottlenecks in clearances
| Transparency and simplicity needed
in power rates
| Easier power supply to encourage
Make in India