Laying the pitch for the PM Narendra Modi led government’s first full-year budget, the Economic Survey on Friday called for ‘Big Bang’ reforms, raising public investments to drive economic growth and improving business environment by making regulation and taxes less onerous.
The survey forecasts that the economy will grow by 8.1-8.5 per cent in 2015-16, as compared to 7.4 per cent in the current fiscal, and by 8-10 per cent in years thereafter, under a new calculation method.
“India has reached a sweet spot and… there is scope for Big Bang reforms now,” it said, adding a political mandate for reforms and a benign external environment have created a historic moment of opportunity to propel India onto a double-digit growth trajectory.
Finance Minister Arun Jaitley, who laid a copy of the Survey in the Lok Sabha, must in his budget tomorrow “continue the process of fiscal consolidation, embedding actions in a medium-term framework”, it said.
“Decisive shifts in policies controlled by the Centre combined with a persistent, encompassing, and creative instrumentalism in other areas could cumulate to Big Bang reforms,” the Survey said.
The Budget should aim at creating a competitive, predictable, clean and exemption-light tax policy regime that will lower the cost of capital, incentivise savings and facilitate tax payer compliance.
Outlining the reforms needed to boost investment and growth, it listed improvements to tax administration, easing the cost of doing business, labour and land law reforms, rationalising subsidies, creating a competitive, predictable, and clean tax policy environment and accelerating disinvestment.
Talking to reporters, Chief Economic Adviser Arvind Subramanian, the author of the Economic Survey, said: “We are going to have moderated inflation, and shall overshoot the RBI’s growth forecast”.
Stating that private investment must remain the primary engine of long-run growth, the pre-Budget document, however, said in the interim public investment, especially in the railways, will have an important role to play in revival of growth and deepening physical connectivity.
It termed as game-changing the implementation of the GST and moving to technology enabled direct benefit transfers through JAM (Jan Dhan-Aadhaar-Mobile) Number Trinity, which can “wipe every tear from every eye”.
“It will be Nirvana for two reasons– the poor will be protected and provided for; and many prices in India will be liberated to perform their role of efficiently allocating resources and boosting long run growth,” it said.
The Survey suggested that fiscal deficit should be brought down to 3 per cent of GDP in the coming years, while the Current Account Deficit (CAD) is estimated to fall to 1 per cent in 2015-16.
The retail inflation is expected to be between 5-5.5 per cent next fiscal.
Observing that India’s fiscal situation has improved, the Survey said there should be “no ground for complacency” and India must meet its medium term fiscal deficit target of 3 per cent.
“India can balance the short-term imperative of boosting public investment to revitalise growth with the need to maintain fiscal discipline. Expenditure control and expenditure switching, from consumption to investment, both in the upcoming budget and in the medium term will be a key,” it said.
The Survey also made a case for cut in interest rate by the RBI saying it would be one of key factors that will boost growth. Fall in crude oil prices, reforms and normal monsoon could also help to accentuate growth.
In a separate chapter on 14th Finance Commission, the Survey quoted both the first Prime Minister Jawaharlal Nehru and current PM Narendra Modi, to emphasise that adoption of FFC recommendation and creation of NITI Aayog would promote government’s cooperative and competitive Federalism.