Ahead of the 1st February Union Finance Budget, the Economic Survey 2017-18 was tabled by Finance Minister Arun Jaitley in the Parliament. This survey authored by chief economic adviser Arvind Subramanian proceeded to make bold statements about the Indian Economy and projections in the upcoming future.
One of the major projections of the survey is a healthy 7-7.5% growth rate in 2018-19 and projected a higher growth of 6.75% for the current 2017-18 fiscal, as compared to the 6.5% projected by the Central Statistics Office (CSO).
From the third quarter of the 2016-17 fiscal, the nation’s economy has had to deal with disruptive changes like Demonetisation and the Goods and Services Taxation regime which came into effect from 1st July 2017. These measures meant that the Indian economy took time in coping with the changes, and slowed down to a 3 year low of 5.7% in the 2nd quarter of 2017.
But as per the Economic Survey, the Indian economy’s revival is alive and kicking:
Robust and broad-based signs of revival in economic activity #economicsurvey18https://t.co/VAfz77JvGppic.twitter.com/63cvnFvsPJ
— arvind subramanian (@arvindsubraman) January 29, 2018
Subramanian also gave a big thumbs up to the implementation of the GST by calculating a 12% growth:
GST revenues doing well: 12 percent growth, better buoyancy than previous taxes (Box 7, Ch. 1., Vol. 1) #economicsurvey18https://t.co/VAfz77JvGppic.twitter.com/wgROVrWmab
— arvind subramanian (@arvindsubraman) January 29, 2018
Demonetisation and GST have also been a boon taxpayer wise, with a total of 1.8 million new Tax filers being registered post November, 2016 and a 50% increase being in the new registrations under the GST’s umbrella:
This 1.8 million increase comes after factoring in the regular year on year growth in the number of taxpayers regardless of these reforms, which was pegged at about 10%. So besides this normal growth of 10%, 1.8 million more people were added to the tax net, which has been attributed to demonetisation and GST.
Even though the direct taxation net has widened post GST, the fact remains that the contribution of the direct taxes towards the government’s revenue is lowest after China.
What also comes as a boost for the economy is the realisation that India’s formal sector (which comprises of establishments which are taxed and monitored by governmental agencies), is greater that what it was believed to be. When one considers the formal sector excluding those on an agricultural payroll, it turns out to be 53% based on establishments which are part of the GST.
The GST data has also provided a new estimate that trade within India accounts for about 60% of the GDP which is more than 54% of what was estimated last year.
This economic survey for the first time also studied the international exports made by the Indian states and almost predictably found that the states which have higher exports are more prosperous. India’s international exports are incidentally also more diversified in terms of the supplying entity, in the sense that, top 1% of the Indian firms account for just 38% of the exports. Comparatively this number stands at 68%, 55% for Germany and USA respectively.
With optimism also comes caution, the economy survey also warns that, the biggest threat to India’s growth story in the next fiscal, is the possible rise of crude prices in the international market. It also asks the government to safeguard against a sharp fall of ‘elevated stock prices’ which might result in a sudden stagnation in the flow of capital.
Overall though it can be concluded that India’s growth situation remains strong, with GST and demonetisation’s benefits starting to noted. Besides this, Subramanian has also claimed that the private investment has picked up. Plus as per him, the long standing twin balance sheet problem, which is a two pronged problem of corporate debt and bank NPA, is being tacked via the Insolvency and Bankruptcy Code (IBC) and Bank recapitalisation.
Now riding on this economic survey, it remains to be seen what measures Arun Jaitley announces in his budget on Thursday.
