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With hope of 7.5% growth Government expects to rise inflation in its’ Economic Survey 2018!

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(G.N.S) Dt. 29
New Delhi
– Union Budget may focus on employment and investment
The forthcoming Union Budget 2018 could be pro-investment and not populist, even as it may try to address the stress in the rural economy. Highlighting the major achievements of the current fiscal — the impact of GST, India’s egalitarian export structure, the preference of the Indian society for a male child and lower tax collections — the Economic Survey 2017-18 has highlighted 10 new facts about the Indian economy.
It is possible that the government will look at textiles, apparels, leather, gems and jewellery and other labour-intensive sectors for job creation with some kinds of booster dose in the Budget. A 50 percent increase in unique indirect taxpayers under the GST compared with the pre-GST system. Similarly, there has been an addition (over and above trend growth) of about 1.8 million in individual income tax filers since November 2016.
That’s the indication analysts read from the Economic Survey 2018, which Finance Minister Arun Jaitley unveiled in Parliament on Monday. Jaitley will present the Union Budget this Thursday.
Analysts said steps to increase farm productivity, encourage private investments and boost exports could be on top of the finance minister’s agenda in this Budget.
The Economic Survey noted that employment, education and agriculture would be three areas that policymakers may focus on in the medium term.
Finding good jobs for the young and burgeoning workforce, especially for women, creating an educated and healthy labour force and raising farm productivity while strengthening agricultural resilience are some of the medium terms agenda, it said.
“Above all, India must continue improving the climate for rapid economic growth on the strength of the only two truly sustainable engines—private investment and exports,” the Survey indicated.
The Survey noted that the impact of extreme temperature increases and deficiency in rainfall on productivity was twice as large in un-irrigated areas as in irrigated ones. This suggests there could be good allotment of irrigation management systems in the Budget.
There is a need to enhance the level of farm mechanisation in the country, the Survey said, adding that the sale of tractors to a great extent it reflects the level of mechanisation. There could be some announcement in the Budget regarding the same.
A recent World Bank survey said half of the Indian population could be urban by the year 2050, with the estimated percentage of agricultural workers in total work force seen dropping to 25.7 per cent by 2050 from 58.2 per cent in 2001.
The Survey suggested that there is an urgent need to prioritise things to revive investment to arrest more-lasting growth impacts. Data suggests the savings-to-GDP ratio stood at 29 per cent in 2016 against 38.3 per cent in 2007.
Two, the formal non-agricultural payroll is much greater than believed: More than 30 percent when formality is defined in terms of social security (EPFO/ESIC) provisions; more than 50 percent when defined in terms of being in the GST net.
Third, the prosperity of the states is correlated with their international and inter-state trade: states that export more internationally, and trade more with other states, tend to be richer. But the correlation is stronger between prosperity and international trade.
Fourth, India’s firm export structure is substantially more egalitarian than in other large countries: The top one percent of Indian firms account for 38 percent of exports; in all other countries, they account for a substantially greater share (72, 68, 67, and 55 percent of exports in Brazil, Germany, Mexico, and US, respectively). And this is true for the top five per cent, 10 percent, and so on.
Fifth, the clothing incentive package boosted exports of ready-made garments: The relief from embedded state taxes (ROSL) announced in 2016 boosted exports of ready-made garments (but not others) by about 16 percent.
Sixth, Indian society exhibits strong son “Meta” preference: Parents continue to have children until they get the desired number of sons. This kind of fertility-stopping rule leads to skewed sex ratios but in different directions.
Seventh, there is substantial avoidable litigation in the tax arena which government action could reduce: The tax department’s petition rate is high, even though its success rate in litigation is low and declining (well below 30 percent). Only 0.2 percent of cases accounted for 56 percent of the value at stake; whereas about 66 percent of pending cases (each less than Rs 10 lakh) accounted for only 1.8 percent of the value at stake.
Eighth, to re-ignite growth, raising investment is more important than raising saving: cross-country experience shows that growth slowdowns are preceded by investment slowdowns but not necessarily by savings slowdowns.
Ninth, own direct tax collections by Indian states and local governments are significantly lower than those of their counterparts in other federal countries: This share is low relative to the direct taxation powers they actually have.
Tenth, the footprint of climate change is evident and extreme weather adversely impacts agricultural yields: The impact of weather is felt only with extreme temperature increases and rainfall deficiencies. This impact is twice as large in unirrigated areas as in irrigated ones.
“Since investment slowdowns are more detrimental to growth than savings slowdown, so policy priorities over the short run have focused on reviving investment by mobilising saving, via attempts to unearth black money and encouraging the conversion of gold into financial saving. The share of financial saving is already rising in aggregate household saving – with a clear shift visible towards market instruments,” the Survey said.
The Survey noted that the investment slowdown in India started in 2012, subsequently intensified and was apparently still continuing as of the latest date, that for 2016.
The Survey noted that the formal sector payroll, especially formal non-farm payroll, is substantially higher than what it was believed to be. It noted that steps have been taken to increase large-scale employment in textiles, apparels, leather, gems and jewellery and other labour-intensive sectors. Further announcements on the same are likely in Budget.
Climate change may cut farm income by 20-25%
Climate change could adversely affect farmers income by up to 20-25 per cent in the medium term, the Economic Survey warned and suggested the need for “dramatic” improvement in irrigation, use of new technologies and better targeting of power and fertiliser subsidies.
The government has also been recommended to take “radical follow-up action” to achieve its objective of addressing agricultural stress and doubling farmers? income.
Since agriculture is a state subject and an open political economy question, the Survey strongly advocated a mechanism similar to the GST Council to bring more reforms in the agriculture sector and boost farmers income.
“Climate change ? whose imprint on Indian agriculture is already visible ? might reduce farm incomes by up to 20-25 per cent in the medium term,” the Survey for 2017-18 said.
Climate change could reduce annual farm incomes in the range of 15-18 per cent on average, and up to 20-25 per cent for unirrigated areas, it said.
At current levels of farm income, that translates into more than Rs 3,600 per year for the median farm household, the survey estimated. “Minimising susceptibility to climate change requires drastically extending irrigation via efficient drip and sprinkler technologies, and replacing untargeted subsidies in power and fertiliser by direct income support,” the Survey said, while calling for review of cereal-centric farm policy. India needs to spread irrigation and do so against a backdrop of rising water scarcity and depleting groundwater resources, it said. At present, about 45 per cent of farm land is under irrigation. The Indo-Gangetic plain, and parts of Gujarat and Madhya Pradesh are well irrigated. But parts of Karnataka, Maharashtra, Madhya Pradesh, Rajasthan, Chattisgarh and Jharkhand are still extremely vulnerable to climate change on account of not being well irrigated. The Survey further said that fully irrigating Indian agriculture, that too against the backdrop of water scarcity and limited efficiency in existing irrigation schemes, will be a defining challenge for the future. Technologies of drip irrigation, sprinklers, and water management?captured in the ?more crop for every drop? campaign?may well hold the key to future Indian agriculture and hence should be accorded greater priority in resource allocation, it said. And, of course, the power subsidy needs to be replaced by direct benefit transfers so that power use can be fully cost and water conservation furthered, it added. Stating that the climate change will increase farmer uncertainty, the Survey called for an effective crop insurance and embrace farm science and technology with renewed ardour. “Building on the current crop insurance program Pradhan Mantri Fasal Bima Yojana, weather-based models and technologies like drones need to be used to determine losses and compensate farmers within weeks,” it said. Stating that the agri-sector is experiencing structural changes leading to new challenges and opportunities, the Survey said that the farm sector will remain an engine of broad based growth even as its share in gross value addition (GVA) is on the decline. The central priority of the government will be to provide opportunities for farmers to diversify their income generating opportunities to reduce the various risks by facilitating the development of agriculture sub-sectors like livestock and fisheries, it observed.

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