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EconomicSurveyHighlights
Investinwelfare,undertakereforms,saysEconomicSurvey
EconomicsurveyprojectsrealGDPgrowthforthecurrentfinancialyearand201617tobeinthe
rangeof77.75%.
AccordingtoCSO,growththisyearwillbe7.6%,lowerthan8.18.5%growthprojectedinthe
lastsurvey.
Importantrecommendationsmadebythesurveyinthisregard:
Improvedinvestmentsinhealthandeducation,whereIndiafarestheworst,andadequate
attentiontoagriculturecouldhelpIndiaachievehighergrowthrates.Fourseasonsofweak
rainfallhavedemandedimmediateattentionfrompolicymakers.
ThesurveyhasadvisedthegovernmenttotakeuptheunfinishedagendaincludingtheGoods
andServicesTax,strategicdisinvestment,destressingofthebalancesheetofbothbanksand
privatecompanies,andtherationalisationofsubsidies.Stretchedcorporateandbankbalance
sheetsareaffectingprospectsforrevivingprivateinvestments,andsotheunderlyingstressed
assetsmustbesoldorrehabilitated,thesurveynoted.
Italsorecommendsrestrictingthecookinggassubsidyto10cylindersfrom12atpresent,
raisingthelevelsofpropertytaxanddesistingfromraisingtheincometaxthreshold.
Italsorecommendsraisingresourcesforrecapitalisingpublicsectorbanksbycarefully
leveragingtheassetsoftheReserveBankofIndiaandotherregulatoryinstitutions.
Thesurveymakesacaseforunpopularreforms,suchasbringingagriculturalincomesinthetax
net,rationalisationoffertilisersubsidiesestimatedatRs.75,000crore(excludingarrears)andthe
withdrawaloftaxbenefitswhich,benefitmainlytherich.
Thesurveyhasalsoindicatedthatthegovernmentwouldkeepthefiscaldeficitwithinthetargetof
3.9%ofGDPinthecurrentyear.

HighestFDI
Accordingtothesurvey,DelhiisthelargestrecipientofFDIinthecountry.Itiscloselyfollowedby
MaharashtraandKarnataka.

RichfeedoffsubsidiesworthoverRs.1lakhcrore:EconomicSurvey
ThesurveynotesthatIndiasrichfeedoffsubsidiesworthoverRs.1lakhcroreayearthatare
meantforthepoor.Whilenotingthis,thesurveyhasconsideredsubsidiesonlyonsixcommodities
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includingRailways,electricityandPPF.
Italsosaysthatvariousgovernmentinterventionsinthecountryhavebeenhelpingthe
relativelybetteroffinsociety,whichinturnistakingtheformofexplicitsubsidization,andis
substantialinmagnitude.
Implicationsofsuchpolicies:Anytaxincentivesthataregiven,forexample,forsavings,benefitnot
themiddleclass,nottheuppermiddleclassbutthesuperrichwhorepresentthetop12%.

Wherewearelosing?
Mostcommoditiesprimarilyconsumedbytherichhaveaverylowtaxrate,ineffect
subsidisingthematthecostofthepoor.Forexample,therichconsume98%ofthegoldinthe
country,andyetgoldistaxedatonly11.6%(theCentreandtheStatescombined).
Therichavailofan88%subsidyonkerosene,amountingtoRs.5,501croreand86%subsidy
onLPG,amountingtoRs.40,151crore.
Somecommoditiesaresubsidisedmoreforthepoorthantherich,suchasrailwaytickets
(sincetherearedifferentcategoriesoftickets),butevenhere,therichavailofasubsidyof
34%.
Similarly,thetaxstructurehasresultedinaviationfuelbeingcheaperperlitrethanpetroland
diesel.Aviationfuelistaxedatabout20%(averageoftaxratesforallstates),whiledieseland
petrolaretaxedatabout55%and61%.TherealconsumersofATFarethosewhotravelbyair,
whoessentiallyarethewelloff.

Howthiswascalculated?
Toarriveatthequantumofsubsidiesavailedofbytherich,theEconomicSurveyassumedthe
averagetaxonnormalcommoditiesat19%,theRevenueNeutralRatefortheGSTas
recommendedbytheSubramanianpanel,anda50%taxonenergyrelatedcommoditiesthat
servesasanappropriatecarbontax.
Theeffectivesubsidyavailedbytherich,ascalculatedbytheSurvey,isthedifferencebetween
thistaxrate(19%or30%)andtheactualsubsidy,measuredasanegativenumber,orthe
(positive)taxrateonthatcommodityorservice.

PrivatefinancevitalforIndiatoreachclimategoals:Survey
TheEconomicSurveyfindsthatIndiawillfindithardtomeetitsvarietyofobligationstotackle
climatechangewithoutsubstantialhelpfromtheprivatesector.
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SuccessfulimplementationoftheParisAgreement,theSustainableDevelopmentGoals(SDGs)and
theambitioustargetssetoutintheIntendedNationallyDeterminedContributions(INDCs)will
requirehugefinancialresourceswhichcannotbemetthroughbudgetarysourcesalone.Hence,
accordingtothesurvey,leveragingprivatefinancealongwithpublicfinance,bothinternational
andnational,willbecritical.
TheSDGssetbytheUnitedNationslastSeptemberlaytheonusoncountriestomake
significantprogressonawiderangeofgoalsincludingendingpovertyandhungerand
combatingclimatechange.
TheINDCsareplansbygovernmentscommunicatedtotheUnitedNationsclimatechange
councilregardingthestepstheywilltaketoaddressclimatechangedomestically.

Only5.5%whoearnaretaxpayers:EconomicSurvey
Accordingtothesurvey,onlyabout5.5%ofthepeoplewhoearnpaytaxinIndiaandonly15.5%of
thenetnationalincomeisreportedtothetaxauthorities.
ThetaxtoGDPratioat16.6%,asaresult,iswellbelowthatoftheemergingmarketeconomies
of21%andOECDaverageof34%.
Ontheexpenditureside,Indiasspendingonhumancapital,educationandhealth,tothe
GDPratioisthelowestamongBRICSandlowerthantheOECDandemergingmarket
economiesaverages.Theyareinfact,lowerthanthoseofcomparablepercapitaGDP
economiessuchasVietnam,BoliviaandUzbekistan.

Whatneedstobedone?
TowidenthetaxnetandraiserevenueforspendingonIndiashumancapitaldevelopment,
thesurveycalledforbringingrichfarmersintothetaxnet,raisingpropertytaxratesand
phasingouttaxexemptions.
Besides,thereshouldbereasonabletaxationofthebetteroff,regardlessofthesourceoftheir
incomes,whetheritisfromindustry,services,realestate,oragriculture.

InequalityinIndia
ThesurveyalsoseekstoanalysethelevelsofinequalityinIndia.
Accordingtothesurveyfastgrowingyearsinthe2000swereinfactassociatedwithrising
inequalityattheverytopendoftheIndianincomedistribution.
Asinmanycountries,therehasbeenagrowingconcentrationofincomeatthetop:in201314.
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Thetop1%,0.5%and0.1%ofpeopleintheoverallincomedistribution(thethreehighest
incomegroups)accountedfor12.4%,9.4%and5%oftheentireincomeoftheIndian
economy.
Attheselevels,inequalityinIndiaiscomparabletothatintheU.K.andlesserthaninthe
UnitedStates.

RBImustredeployitscapitalinstateownedbanks
ThesurveyhasaskedtheReserveBankofIndia(RBI)todeploysomeofitscapitalinthepublic
sectorbanks(PSBs).
Thesurveyhighlightedtheratioofshareholderequitytoassets(totalequityasapercentageof
balancesheet)forRBIisveryhighamongvariouscentralbanks,at32%,onlyafterNorway
andwellabovethatoftheU.S.FederalReserveandtheBankofEnglandwhoseratiosareless
than2%.
Stress,whichisemanatingfrombothbanksandcorporatesector,isamajorimpedimentto
privateinvestmentandafullfledgedeconomicrecovery.
ThesurveynotesthatiftheRBIweretomoveeventothemedianofthesample(16%),this
wouldfreeupasubstantialamountofcapitaltobedeployedforrecapitalizingthePSBs.
However,anysuchmovewouldneedtobeinitiatedjointlyandcooperativelybetweenthe
governmentandtheRBI.Anditwillalsobecriticaltoensurethatanyredeploymentofcapital
wouldpreservetheRBIsindependence,integrityandfinancialsoundness.
Ontheotherhand,bankingindustryexpertssaidtheideamaynotgowellwiththeRBIwhich
insiststhatitsregulationisownershipneutral.

StateofPSBs:
Publicsectorbanksareinneedofcapitalasbadloanshavesurgedinthelastfewyearsandalsoto
meetBaselIIInorms.ThefinanceministryestimatespublicsectorbankswillneedRs.1.8lakh
crorecapitalinfusionforfouryearsendingMarch201819whilethegovernmentplanstoinfuse
onlyRs.70,000croreduringtheperiod.

Gaspricesmustbelinkedtomarket
MarketdeterminedpricingforgasinIndiaisthebestpolicygoingforwardinordertoensure
greaterinvestment,competitivenessandtransparencyinthesector,accordingtotheEconomic
Survey.
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ThesurveyalsorecommendscappingtheLPGsubsidyto10cylindersperhouseholdperyear
fromthecurrent12.
Marketdeterminedarmslengthpricingfordomesticgas,withaneffectiveregulator,to
provideadequateincentiveforinvestmentandalsoensurecompetitivenessandtransparency
remainsthefirstbestsolutionthatmeritsconsideration.Itwouldreflecttheappropriategas
priceinrelationtoalternativefuels.
Thecurrentgaspricingformula,inplacesinceOctober2014,mandatesthatthepriceofnatural
gasberevisedeverysixmonthsonthebasisofaweightedaverageofratesingassurplus
economiessuchastheUS,Mexico,Canada,andRussia.

Indiahas3rdlargestbaseofstartupfirms
Withinayear,thenumberoftechnologystartupsinthecountryhasgrownby40percenttoover
4,200,makingIndiathethirdlargestbaseoftechnologystartupsintheworld,accordingtothe
EconomicSurvey201516.
Thishasfurtherhelpedcreateabout80,00085,000jobsduring2015.
Also,IndianstartupsraisedUSD3.5billioninfundinginthefirsthalfof2015,andthe
numberofactiveinvestorsinIndiaincreasedfrom220in2014to490in2015.
AsofDecember2015,eightIndianstartupsbelongedtotheUnicornclubi.ehadvaluations
greaterthanUSDonebillion.

Slowlabourreformshurtgoodjobs
Theeconomicsurveyhascriticisedtheslowpaceofreformsinlabourlaws,arguingthatfirms
negotiateregulatoryhurdlesimposedtoprotectemployeeswhogetpoorqualityjobsasa
consequenceandsuggestedeasierretrenchmentnormsandlowerstatutorydeductionsfrom
salariestocreategoodjobs.
Indiasmostpressinglabourmarketchallengegoingforwardwillbetogeneratealarge
numberofgoodjobs.Thesejobstendtobeformalsectorjobs.
Twoobstaclestoformalsectorjobcreationareregulationinducedtaxesonformalworkers
andspatialmismatchbetweenworkersandjobs.
However,theslowpaceoflabourreformhasencouragedfirmstoresorttootherstrategiesto
negotiateregulatorycholesterol.Onepopularstrategyistohirecontractworkers,thesurveysaid
highlightinghowmanaginginspectorstothecontractlabourfirmhasbecomeanormalexercise
forfactories.

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RoleofIndustrialDisputesAct:
Mediumsizedformalsectormanufacturingfirmshavereportedlabourregulationsasasignificant
barriertogrowth,specificallythedismissalnormsundertheIndustrialDisputesAct.
TheIndustrialDisputesAct1947requiresfirmswithmorethan100workerstoseek
governmentsapprovalbeforeretrenchingworkers.Thelawhasencouragedfactoriesto
employcontractworkerstostayoutoftherulebookseventhoughentrepreneursfeelcontract
labourisnottheidealsolutionforthem.
Only35%ofthe10.5millionnewmanufacturingjobscreatedbetween1989and2010wereinthe
formalsector.Thoughtheinformalsectorkeptunemploymentlevelslow,thesejobsweremuch
worsethantheformalsectorones.

DBTjammedbylastmilechallenge
Accordingtothesurvey,thegovernmentsbigpushforscalingupDirectBenefitTransfersubsidies
usingtheJAMtrinity(JanDhanYojana,AadhaarandMobilenumber)isunlikelytoworkinrural
Indiaintheshorttomediumterm.
ItnotesthattheJAMagendaiscurrentlyjammedbythelastmilechallengeofgettingmoney
frombanksintobeneficiarieshands,especiallyinruralIndia.
Thesurveyaddsthereisstillsomewaytogobeforebankbeneficiarylinkagesarestrong
enoughtopursueDirectBenefitTranfer(DBT)withoutcommittingexclusionerrorsdespite
thehugeimprovementsseeninfinancialinclusionduetoJanDhanYojna.

Whatneedstobedone?
Thegovernmentmustinvestinlastmilefinancialinclusionbyfurtherimprovingbanking
correspondent(BCs)networksandpromotingthespreadofmobilemoney.
RegulationsgoverningtheremunerationofBCsmayneedtobereviewedtoensurethat
commissionratesaresufficienttoencourageBCstoremainactive.
TheSurveyalsosuggestsincentivisingstatesbysharingfiscalsavingfromDBTtohelpfully
implementJAM.
SurveyoutlinesstepstoboostMakeinIndia
Thesurveyhasproposedaslewofsteps,suchaseliminatingexemptionsoncountervailingduties
onimports,monetisationoflandownedbypublicsectorcompaniesandallowingindustriestobuy
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electricitydirectlyfromthemarketstoenableMakeinIndiaInitiativeasuccess.

Challenges:
Thedutyexemptionsarefavouringforeignproducersoverdomesticallymadegoodsthus
defeatingtheinitiative.
Theefficiencyofelectricalenergyusagehasfallenwithanincreaseinpowergeneration
capacitynotbeingabletobecapitalisedbydistributioncompaniesduetheirfinancialinability
topurchaseelectricity.
Ontheissueofcountervailingdutyexemptions,theEconomicSurveylastyearhadalso
pointedoutthatthedutieswerenotimposedonseveralitemsofimports.Thesurveyhadsaid
theeffectiverateofexciseondomesticallyproducednonoilgoodswasabout9%.Thoughthe
effectivecollectionrateofCVDsshouldtheoreticallybethesame,inrealtermsitwasonly
around6%.Thisdifferencerepresentsthefiscalcosttothegovernmenttothetuneofaround
Rs.40,000crore.
AnotherfactorthatcouldhaveanadverseeffectontheMakeinIndiaInitiativewillbeIndias
decisiontojointheUSledmegaregionalfreetradepactcalledtheTransPacificPartnership
(TPP)atafuturedate.

Otherproposedmeasures:
Partsoflandbelongingtothestateownedcompaniescanbeconvertedintolandbanksand
usedtopromoteSmartCityinitiatives.Ifthelandisindenseurbanareas,itcouldbeusedto
developecosystemstonurturestartups,andiflocatedinsmallertownsandcities,itcouldbe
usedtodevelopsitesforindustrialclusters.
Industrieswithahighdemandforpowershouldbeallowedtoabsorbtheexcessgeneration
capacitythroughopenaccess(OA).ConsumerswithelectricityloadaboveoneMWare
permittedbytheOApolicy(undertheElectricityAct2003)toprocurepowerdirectlyfrom
electricitymarkets.
EliminatingpoliciescurrentlyprovidingnegativeprotectionforIndianmanufacturingand
favouringforeignmanufacturingcouldbeachievedbyquicklyimplementingtheGoodsand
ServicesTax(GST.However,ifdelaysareenvisagedinrollingouttheGST,asimilarresult
couldbeachievedbyeliminatingthedutyexemptions.
MembershipoftheTPPwouldpreventtheIndiangovernmentfromusingstateowned
enterprisesandgovernmentprocurementasvehiclesforachievingsocialandeconomic
objectives,includingemploymentgeneration,therebyhavetocompromiseontheMakein
IndiaInitiativepolicy.

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TheMakeinIndiaInitiativeaimstotransformIndiaintoaglobalmanufacturinghubandincrease
theshareofmanufacturinginIndiasGDPfromastagnant1516percentsince1980to25percent
by2022andcreateanadditional100millionjobs.
sources:thehindu.

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