Economic Survey draws contours of Union Budget
A precursor to the Union Budget due on Monday next week, Economic Survey tabled in the parliament presents a realistic health card of the economy. Advance estimates of GDP growth for FY ’16 pegged at 7.6 percent is broadly on anticipation lines, albeit optimistic, even though targeted growth for fiscal 2016-17 at 7 to 7.5 percent comes across as a rather conservative estimate. It’s always good though to ‘under promise’ and ‘over deliver’. The medium to long term growth forecast of 8 to 10 percent is premised on strong macro-economic fundamentals including healthy forex reserve (at >$350 billion) and benign trends in wholesale as well as retail inflation.
Speaking of deficits, fiscal deficit target of 3.9 percent appears to be within reach now for the current fiscal; revenue deficit continues its downtrend movement from 2.9 percent (2014-15) to 2.8 percent for 2015-16. At 1.5 percent, current account deficit is mild, given the fall in exports and reflects work of resilience in the Rupee despite the wider currency turmoil in global capital markets. The fiscal figures should calm the choppy capital and forex markets in India. The survey reinstates the government’s commitment to rein in deficit in short to medium term. Total subsidiary burden has fallen significantly (at 2 percent of GDP) and that provides elbow room for the government in setting out challenging fiscal consolidation targets for the full term of the NDA government.
Insofar as tax revenues are concerned, much on anticipated lines, growth in indirect tax collections (at 34.8 percent) outshined direct tax collection Taxes which grew at 10.7 percent. A major source of non-tax revenues, disinvestment proceeds continue to be dismal at 18.5% of the budget estimates. Amongst other macro-economic challenges, sharp currency adjustment in global and Asian markets and uncertain commodity prices are two trends which underlines volatility risks, even though Indian equity market is expected to outperform global trends.
In summary, statistical backdrop put forth by the Economic Survey largely sets out the contours of Budget proposals, which I would expect, shall focus on catalyzing private investments in strategic sectors, rolling out enhanced targets for tax revenue growth, and reinstating principle of fiscal prudence under the aegis of a revamped fiscal consolidation roadmap.