Shivaji Sarkar
At 7.6 per cent, India has the world’s fastest growth rate, which is boosted by government spending, says the Economic Survey 2015-16. The document is essentially a blatant admission of the fact that ‘Manmohanomics’ could not make any difference to the private sector’s dependence on the government. Meanwhile, the farm sector remains a dominant force for growth but requires dynamic and holistic policy change to live up to its potential.
The Economic Survey is concerned about the lack of private investment and the underlines the enhanced need for acceleration of the domestic economy – a challenging task for the Government which is saddled with legacies of the past.
The Railway Budget, presented last week, strengthens these views. Railway Minister Suresh Prabhu has not raised fares or freight costs; instead, he has announced several moves to make the railways efficient and attractive. But Mr Prabhu has also underlined numerous challenges. The biggest is the shortfall in earnings by Rs 15,743 crore. Against a targeted revenue of Rs 1.83 lakh crore in 2015-16, Indian Railways could only earn Rs 1.67 lakh crore. The reason is the fall in passenger and freight earnings, as traffic is moving to the skies and the roads.
Goods that were previous moved via railways are now being transported via highways that are faster and cheaper. Railways now carries only 36 per cent of goods traffic against 62 per cent in 1980. Passengers, from both higher and lower classes, are also either taking flights for longer distances or buses for shorter distances. In many cases, premium train tickets (especially the higher classes) cost almost the same as flight tickets – not to mention, the cumbersome reservation and expensive cancellation system.
Alternative models of revenue, such as monetisation of railways-owned land, advertising on trains and stations, have been considered repeatedly since the 1980s, without much success. Prabhu has set a target of Rs 1.21 lakh crore, though Indian Railways has not met its target in the current fiscal.
The new ‘mission mode’ emphasises a higher freight load and better book keeping, suggests saving about Rs 1,500 crore in equipment expense, and also pushes for higher speed for all trains. These will be made possible through investments from the Life Insurance Corporation, the Railway Debt Service Fund and foreign partners.
The Economic Survey also mentions how external slowdown is affecting Indian exports; it envisages a shortfall in foreign investments as foreign companies are being pressurised by their Governments to go slow.
Domestic consumption is being as seen as the driver of economic activity. The Survey says that additional money to employees through higher Central Pay Commission wages will boost consumption. It has, however, cautioned against overt dependence on growth through consumption.
One healthy aspect of the economy, achieved due to a larger portion of Union finances going to the States, has been the higher amounts of capital expenditure. Real expenditure on education, health, agriculture and rural development also recorded a growth of 4.7 per cent, nine per cent and 8.1 per cent respectively.
National growth is closely linked to global growth as India is more globalised now, the Survey notes. It says that a one percentage point decrease in the world’s growth rate causes a 0.42 per cent deceleration in India’s growth rate. If world economy remains weak, “India’s growth will face considerable headwinds”. If the world continues to grow at three per cent, India’s medium term growth trajectory could remain close to seven to 7.5 per cent rather than rise to eight to 10 per cent.
The only hope, the Survey says, is “a good monsoon”. This will raise rural consumption, dampen price pressures and cause monetary easing. The Survey foresees capital reflow to the US as the latter raises its interest rates and tightens
monetary conditions.
Then, there is the twin balance sheet challenge public sector banks that are hit by large amounts of non-performing assets, and large corporate houses that are seeing falling profits. This is a major impediment to private investment and full economic recovery. The Survey sees a risk even to the Reserve Bank of India and wonders if the forex buffer, now touching $351.5 billion, will be hit.
The Survey says India should eliminate policies that provide negative protection to Indian manufacturing and favour foreign manufacturing, and also contain policy volatility in agriculture (for example, there were 10 changes to cotton policy in recent times, mostly relating to exports, and many of these were reversing previous actions).
The Economic Survey finds India in a chakravyuha wherein it is protecting its interests while refusing to give benefits to WTO competitors. The Survey stresses on trade liberalisation for dynamism, and growth for agriculture and manufacturing sectors. The twin tracks, if addressed properly, can protect the farm-sector and create new manufacturing jobs.