Taking the train to faster growth
Dharmakirti Joshi February 27, 2015The economy is recovering, and growth will probably weigh in at 8.1-8.5 per cent next year, but let's hold the cheer - the Economic Survey says it all with that call to caution.
The importance of the economic survey as a source of new data and information on the Indian economy has dwindled over time. A huge amount of data and official economic analysis is now available - including a comprehensive mid-year review of the economy by the finance ministry and the Reserve Bank of India's periodic analysis of economic trends.
Still, there's reason to look forward to it not merely as a backdrop to the Budget to be presented the next day, but also as an instrument for seeding new ideas and triggering debate on macroeconomic issues.
On the smiley side, the latest survey shows growth is inching up, and inflation and current account deficit are under control. But on the flip side, investments and manufacturing output critical for lifting and sustaining growth at double digit are still moribund.
So, the critical task before the government is to nurture the green shoots while devising strategies to stoke investments and manufacturing output.
For this, reforms are critical and challenges need to be overcome. One such challenge is reviving investments. The survey points to a subdued private investment scenario, vindicating a CRISIL study of 192 firms released earlier this week. The study projects an 11 per cent decline in private capital expenditure in 2015-16, leaving it to the government to do the initial heavy lifting for reviving the investment cycle.
The focus on railways, which is identified as a sector with large multiplier effects, is the distinguishing feature of the survey. "The present government can now do for the neglected railways sector what the previous NDA government did for rural roads," says the Survey. It advocates investment in dedicated freight corridors that can parallel the golden quadrilateral, along with associated industrial corridors. The survey backs its claim that railways have the potential to crowd in private investments and trigger growth with global and domestic research findings. Greater public investment in railways will boost the manufacturing sector substantially via its backward and forward linkages, it argues.
The survey unambiguously supports the criticality of adhering to glide path of fiscal consolidation to trim the fiscal deficit to 3 per cent of GDP by 2016/17. This is important from the point of boosting investor sentiment as well as creating an environment for growth inducing monetary policy.
Union Budgets seldom follow Economic Surveys' advice. But given the rising discontent with the slow pace of reforms and the fact that we are some four years away from the next elections, this is the appropriate time to push some bold measures.
The survey keeps hopes alive, saying: "Political mandate for reform and a benign external environment have created a historic moment of opportunity to propel India onto a double-digit growth trajectory. This trajectory would allow the country to attain the fundamental objectives of "wiping every tear from every eye'".
Amen to that.
The author is Chief Economist, CRISIL