Ahead of the Union Budget, the Economic Survey today termed external environment as challenging but projected a 7-7.5 per cent GDP growth rate in the next fiscal which could accelerate to eight per cent in a couple of years.
The Economic Survey for 2015-16, which was tabled in Parliament today, also made a case for carrying forward the reform process to achieve macro-economic stability.
Inspite of challenges and lower than projected GDP growth rate during 2015-16, “the fiscal deficit target of 3.9 per cent of GDP seems achievable.”
After a 7.2 per cent economic growth in 2014-15, it said the expansion in economy will be 7.6 per cent in the current fiscal, the fastest in the world.
However, it cautioned that if the world economy remained weak, India’s growth will face considerable headwinds.
On the domestic side, two factors can boost consumption, increased spending from higher wages and allowances of government workers if the 7th Pay Commission is implemented and return of normal monsoon.
At the same time, the Survey enumerated three downside risks - turmoil in global economy could worsen the outlook of exports, contrary to expectations oil price rise would increase the drag from consumption and the most serious risk is the combination of these two factors.
“One of the most critical short-term challenges confronting the Indian economy is the twin balance sheet problem - the impaired financial positions of the public sector banks and some corporate houses. The twin balance sheet challenge is the major impediment to private investment and a full-fledged economic recovery,” the Survey said.
Indian stocks are relatively resilient despite volatility in the worldwide financial markets and the country can become a leading investment destination going ahead, the Economic Survey said today.
“The (Indian) market has rebounded time and time again, and it is hoped that as the global financial markets settle down, India can become the leading investment destination owing to its robust macroeconomic fundamentals,” as per the 2015-16 report card of the state of the economy tabled by Finance Minister Arun Jaitley in Parliament today.
“Despite volatility in global financial markets, the Indian equity market has been relatively resilient during this period compared to the other major emerging market economies,” it added.
The Survey also said that the average borrowings by banks have increased significantly in the immediate aftermath of US fed rate hike, resulting in appreciation of the rupee.
However, subsequent to easing of liquidity conditions, the rupee started depreciating.
On trends witnessed in capital markets, the Survey said that during the fiscal 2015-16 till December the resource mobilisation through the public and right issues has surged rapidly as compared to the last financial year.
During this period, 71 companies raised Rs 51,311 crore from the capital market compared to Rs 11,581 crore during the corresponding period of 2014-15. Fund garnered by mutual funds also increased substantially to Rs 1,61,696 crore from Rs 87,942 crore.
During 2015-16 so far, the Indian equity market has remained subdued. The BSE’s benchmark Sensex declined by 8.5 per cent (till January 5, 2016) over March 2015, mainly on account of turmoil in global equity markets.
The net investment by Foreign Portfolio Investors (FPIs) in the Indian market was at Rs 63,663 crore in 2015 as compared to Rs 2,56,213 crore in 2014.
Government will be able to achieve the fiscal deficit target of 3.9 per cent in the current fiscal, but containing it in 2016-17 will be a challenge on account of additional outgo towards 7th Pay Commission and a slowing global economy.
The government has pegged the fiscal deficit at 3.5 per cent of GDP for the next fiscal.
“The coming year is expected to be a challenging one from the fiscal point of view. The chances of India’s growth rate in 2016-17 increasing significantly beyond 2015-16 levels are not very high due to the likelihood of persistence of global slowdown,” said the Economic Survey for 2015-16 tabled in Parliament by Finance Minister Arun Jaitley today.
As per the Survey, the economy is expected to see a growth of 7-7.75 per cent in 2016-17 while the government estimates GDP to expand by 7.6 per cent in the current fiscal.
“Further, the implementation of the Pay Commission recommendations and the One Rank One Pay (OROP) scheme will put an additional burden on expenditure. Improving tax compliance through better tax administration, tapping new resources etc could help raise more revenue and keep the fiscal deficit at levels projected in the revised fiscal road map,” it said.
Improving the quality of expenditure has been indicated as important for achieving sustained fiscal consolidation, it said.
For the current fiscal, it added that the fiscal deficit target of 3.9 per cent seems achievable.
“This assessment is based on pattern of revenue and expenditure in the first 9 months of the current financial year in spite of the challenges posed by a lower than projected nominal GDP growth,” it said.
A significant increase in revenue receipts, led by buoyant indirect tax collection, higher level of capital expenditure on the plan side, lower level of subsidies and enhanced untied resources transferred to states following the acceptance of recommendations of the 14th Finance Commission are some of the salient developments of the fiscal performance in 2015-16 so far, the Survey said.
The performance of indirect taxes in the first 9 months indicates that the budget estimates are likely to be achieved and possibly exceeded, partly on account of measures taken by the government to enhance revenue by raising excise duty on petroleum product, it said.
Besides, several major steps were also taken on both indirect and direct taxes in 2015-16, according to the report. India’s most pressing labour market challenge going forward will be to generate large number of “good jobs”—jobs that are safe and also pay well, the Economic Survey said today.
In order to take advantage of the democratic dividend and meet growing aspirations of those entering the workforce, the economy needs jobs that are good, safe, productive and well paying,” as per the 2015-16 report card of the state of the economy tabled by Finance Minister Arun Jaitley in Parliament today.
“Indian economy needs to create enough ‘good’ safe productive well-paying jobs,” the survey said adding “these jobs tend to be formal sector jobs”.
Two obstacles to formal sector jobs creation are regulation-induced taxes on formal workers and spatial mismatch between workers and jobs.
“Meeting the challenge ahead will require more of such ingenuity, and the private sector, state governments and the Centre will all have important roles to play,” it added.
Around 10.5 million new jobs were created between 1989 and 2010, only 3.7 million - or about 35 per cent were in the formal sector.
The survey noted that there has been an increase in use of contract labour. The number of contract workers has increased from 12 per cent of all registered manufacturing workers in 1999 to over 25 per cent 2010 as firms’ just wanted to boost their production without facing any kind of labour unrest.
It also suggested that productivity in the apparel sector can be substantially improved by relocating capital from less productive to more productive firms.
India’s apparel sector is dominated by informal firms where around 2.0 million establishments employing about 3.3 million workers, dwarf the formal apparel sector’s 2800 firms which employ 330,000 workers.
“To boost economy the centre has to ensure that labour regulation is worker-centric, by expanding workers choice and reducing mandatory taxes on formal sector employment,” the survey said.
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