The Telegraph
Thursday , July 10 , 2014
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An old Sanskrit injunction warns against speaking the unpleasant truth. But the Economic Survey of 2013-14, which the finance minister, Arun Jaitley, tabled before Parliament yesterday, did not shy away from announcing the bitter truth that India’s fiscal situation is bad and is, in fact, worse than it appears. Following from this, the main thrust of the Economic Survey is towards fiscal correction, even if this entails a few unpalatable policy measures. In this respect, the Survey is probably setting the context for the Union budget to be presented today. The Survey clearly underlines the urgent need to review the whole basis for subsidies if any kind of fiscal consolidation is to be achieved. It admits that shortfall in revenues can be managed through more efficient mobilization and through reforms. It also recommends raising the tax-to-GDP ratio as a route for better fiscal consolidation. The Survey believes that an improved fiscal situation will restore the overall macroeconomic balance and efficiency. This, in turn, will revive investor sentiments. The Survey clarified that “the emphasis of policy would have to remain on fiscal consolidation and removal of structural constraints.’’

This would suggest that it would be too optimistic to expect any big-ticket reform ideas in the budget and its immediate aftermath. The growth prospects as projected by the Economic Survey are modest: in 2014-15, the gross domestic product is expected to be in the range of 5.4 and 5.9 per cent. But even this projection needs to be tempered by external factors, especially the possibility of a poor monsoon and the poor investment climate. Thus, while growth will be somewhat higher than in the last years, there are no grounds to be over-enthusiastic. Regarding inflation, the Economic Survey struck a happier note. It admitted that inflation continued to be above the “comfort zone’’ but expected the wholesale price index inflation to moderate by the end of the current calendar year. The consumer price index inflation was also showing signs of coming down. The Survey argued that fiscal consolidation, which it aims to achieve, will lower and stabilize inflation. It would appear that the Economic Survey is firmly grounded in the present economic realities. It recognizes that the situation is dire and then proceeds to offer practical solutions rather than present grandiose schemes. It does what the Economic Survey is supposed to do: present a true picture of the economy.