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Dear Professional Colleague,

Over 8% growth in 2015-16: Key Highlights of the Economic Survey 2015

Ahead of the Union Budget 2015, the Hon'ble Finance Minister Shri Arun Jaitley tabled today Economic Survey Report 2015 in the Parliament, outlining the broad direction of the Unuion Budget 2015 and the economic performance of the Country.  

A flagship annual document of the Ministry of Finance, Economic Survey reviews the developments in the Indian economy over the previous 12 months, summarizes the performance on major development programmes, and highlights the policy initiatives of the Government and the prospects of the economy in the short to medium term.

Setting an ambitious target, the Economic Survey 2015 sees the Indian economy growing at over 8% in the coming Financial Year. According to the Economic Survey 2015, robust reforms, push for Make in India and a better external environment make a double-digit growth trajectory seem possible now.

We are sharing with you the key highlights of the Economic Survey 2015:

Economic Outlook, Prospects and Policy Challenges: Macro-economic fundamentals in 2014-15 have dramatically improved

• Inflation has declined by over 6 percentage points since late 2013.

• Inflation is likely to remain in the 5% to 5.5% range, creating space for easing of monetary conditions.

• Current Account Deficit has declined from a peak of 6.7% of GDP (in Q3, 2012-13) to estimated at about 1.3% of GDP in 2014-15 and less than 1.0% of GDP in 2015-16.

• Foreign portfolio flows have stabilized the rupee, exerting downward pressure on long-term interest rates, reflected in yields on 10-year government securities, and contributed to the surge in equity prices.

• After a nearly 12-quarter phase of deceleration, real GDP has been growing at 7.2% since 2013-14, based on the new growth estimates of the Central Statistics Office. Notwithstanding the new estimates, the balance of evidence suggests that India is a recovering, but not yet a surging economy.

• Using the new estimate for 2014-15 as the base, GDP growth at constant market prices is expected to accelerate to between 8.1% and 8.5% in 2015-16.

• Private investment must be the engine of long-run growth. However, there is a case for reviving targeted public investment as an engine of growth in the short run to complement and crowd-in private investment.

• India can balance the short-term imperative of boosting public investment to revitalize growth with the need to maintain fiscal discipline. Expenditure control, and expenditure switching from consumption to investment, will be the key.

• The outlook is favourable for the current account deficit and it’s financing. A likely surfeit, rather than scarcity, of foreign capital will complicate exchange rate management. Reconciling the benefits of these flows with their impact on exports and the current account remains an important challenge going forward

• India faces an export challenge, reflected in the fact that the share of manufacturing and services exports in GDP has stagnated in the last five years.

Fiscal Framework

• India must adhere to the medium-term fiscal deficit target of 3% of GDP.

• India must also reverse the trajectory of recent years and move toward the golden rule of eliminating revenue deficits and ensuring that, over the cycle, borrowing is only for capital formation.

• Expenditure control with growth recovery and introduction of GST will ensure that medium-term targets are met.

• The quality of expenditure needs to be shifted from consumption by reducing subsidies, towards investment.

Subsidies and the JAM Solution

• The direct fiscal cost of all the subsidies is roughly Rs. 378,000 crore or 4.2% of 2011-12 GDP.

• Unfortunately, subsidies can sometimes be regressive and suffer from leakages. For example, electricity subsidies by definition only help electrified households. Even in the case of kerosene, 41% of PDS kerosene is lost as leakage and only 46% of the remaining 59% is consumed by households that are poor.

• The JAM Number Trinity – Jan Dhan Yojana, Aadhaar, Mobile – can enable the State to transfer financial resources to the poor in a progressive manner without leakages and with minimal distorting effects.

The Investment Challenge

• The stock of stalled projects stands at about 7% of GDP, accounted for mostly by the private sector. Manufacturing and infrastructure account for most of the stalled projects.

• This has weakened the balance sheets of the corporate sector and public sector banks, which in turn, is constraining future private investment, completing a vicious circle.

• Despite this, the stock market valuations of companies with stalled projects are quite robust, which is a puzzle.

• Expectation that the private sector will drive investment needs to be moderated.

• Public investment may need to step in to ramp up capital formation.

The Banking Challenge

• The Indian banking balance sheet is suffering from ‘double financial repression’. On the liabilities side, high inflation lowered real rates of return on deposits.  On the assets side, statutory liquidity ratio (SLR) and priority sector lending (PSL) requirements have depressed returns to bank assets.

• Going forward, capital markets and bond-financing need to be given a boost.

• Private sector banks did not partake in the biggest private-sector-fuelled growth episode in Indian history during 2005-2012.

• There is substantial variation in the performance of the public sector banks, so that they should not be perceived as a homogenous block while formulating policy.

Putting Public Investment on Track –  the Rail Route to Higher Growth

• Econometric evidence suggests that the railways public investment multiplier — the effect of a Rs. 1 increase in public investment in the railways on overall output — is around 5.

• However, in the long run, the railways must be commercially viable and public support must be linked to railway reforms.

Skill India to Complement Make in India

• Sectors that are capable of facilitating structural transformation in an emerging economy must:

- Have a high level of productivity. 

- Show convergence to the technological frontier over time.

- Draw in resources from the rest of the economy to spread the fruits of growth.

- Be aligned with the economy's comparative advantage; and

- Be tradeable

• India could bolster the ‘Make in India’ initiative, which requires improving infrastructure and reforming labour and land laws by complementing it with the ‘Skilling India’ initiative.

A National Market for Agricultural Commodities

• India has not one, not 29, but thousands of agricultural markets.

• APMCs levy multiple fees of substantial magnitude that are non-transparent and hence a source of political power.

• The Model APMC Act, 2003 could benefit from drawing upon the ‘Karnataka Model’ that has successfully introduced an integrated single licensing system.

• The key here is to remove the barriers that militate against the creation of choice for farmers and against the creation of marketing infrastructure by the private sector.

Climate Change

• India has cut subsidies and increased taxes on fossil fuels (petrol and diesel along with a coal cess) turning a carbon subsidy regime into one of carbon taxation. The implicit carbon tax is USD 140 for petrol and USD 64 for diesel.

• In light of the recent falling global coal prices and the large health costs associated with coal, there may be room for further rationalization of coal pricing. The impact of any such changes on affordable energy for the poor must be taken into account.

• On the whole, the move to substantial carbon taxation combined with India's ambitious solar power program suggests that India can make substantial contributions to the forthcoming Paris negotiations on climate change.

The Fourteenth Finance Commission (“FFC”)

• The FFC marks a watershed in the history of Indian federalism. The FFC has radically enhanced the share of the States in the central pisible pool from the current 32% to 42%, which is the biggest ever increase in vertical tax devolution. Unprecedented increases in tax devolution will confer more fiscal autonomy on the States. This will be enhanced by the FFC-induced imperative of having to reduce the scale of other Central transfers to the States.

• In other words, States will now have greater autonomy both on the revenue and expenditure fronts.

• FFC transfers are highly progressive; that is, States with lower per capita NSDP receive on average much larger transfers per capita. In contrast, plan transfers were much less progressive.

• The concern that more transfers will undermine fiscal discipline is not warranted because States as a whole have been more prudent than the Centre in recent years.

To view the complete Report of Economic Survey 2015, please click on the link below:

Hope the information will assist you in your Professional endeavors. In case of any query/ information, please do not hesitate to write back to us.

Thanks & Best Regards,                

Bimal Jain

FCA, FCS, LLB, B.Com (Hons)


Flat No. 34B, Ground Floor, Pocket - 1,

Mayur Vihar, Phase - I,

Delhi – 110091, India



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Readers are advised to consult the professional for understanding applicability of this newsletter in the respective scenarios. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. No part of this document should be distributed or copied (except for personal, non-commercial use) without our written permission.


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