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February 12, 2017

Key highlights of Economic Survey 2016-17

Key highlights of Economic Survey 2016-17
Dr. Krishna Ram
Economic Survey is an annual document published by the Ministry of Finance which is presented by the finance minister before the parliament a day before the presentation of Union Budget. This year the finance minister Mr. Arun Jaitely presented the Economic Survey 2016-17 before parliament on 31.1.2017. The Economic Survey highlights the overall economic scenario of past financial years as well as outlines the future prospect of the economy in the short to medium term. Here are the some of the highlights of the economic survey 2016-17:
The economic survey 2016-17 begins by mentioning eight interesting and important facts about India apart from mentioning the two most important developments that took place in the year 2016.  One of the two most important developments is implementation of long awaited and transformational Goods and Service Tax (GST). And the second  is demonetization of Rs. 500 and Rs. 1000 currency notes. The survey reiterates the economic and social benefits of demonetization and GST. The survey argued that demonetization has a transitory short term cost but has very high potential to generate long term benefits in terms of reduced corruption, greater digitization of the economy, increased savings and greater formalization of Indian economy, all of which would eventually lead to higher GDP growth, better tax compliance and better tax revenues. GST creates a common Indian market, improve tax compliance, boosts investment and growth. Apart from these two, The survey mentions about several other programmes such as, Jan Dhan -Aadhaar Mobile (JAM), The National Payment Corporation of India (NPCI), Unified Payments Interface(UPI) and many more which can bring India in the forefront of global economy. India is one among the world's fastest growing economy, underpinned by stable macro economy with declining inflation and external balances. 
Considering Indian economy performance measured in term of GDP, as per the first advance estimates released by CSO, the Indian economy is expected to grow at a rate of   7.1 percent in year 2016-17. The survey predicted a lower estimate of a range of 6.75 -7.5 percent of GDP growth for the upcoming financial year 2017-18. 
 In year 2014-15 India witnessed real GDP growth of 7.2 percent which had gone up to 7.6 percent in year 2015-16. The main reason for decline in growth rate attributed to decline in fixed investment which has declined sharply from 3.9 percent in 2015-16 to (-) 0.2 percent in 2016-17.
Considering the sectorial composition of growth rate of  Gross Value Added (GVA) at constant  basic price we can see that primary (Agriculture & Allied ) sector grown at rate of 4.1 percent in year 2016-17 which was significantly higher as compared to the year 2015-16 mainly because of normal monsoon in current year as compared to pervious year which was preceded  sub-par monsoon.  
 However, there was a decline in growth rate of secondary (Industry) sector which declined from 7.4 percent in year 2015-16 to 5.2 percent in year 2016-17.
Tertiary (Service) sector projected to grow at 8.8 percent in year 2016-17 which is 0.1 percent point lower as compared to the year 2015-16. The fall in growth rate of service sector is mainly because of slowdown in global output and trade. 
CPI - Inflation, remained under control and below the RBI target of 5 percent in last two successive financial years and this trend is likely to continue in the next financial year too. In year 2014-15, average CPI inflation was 5.9 percent which has declined to 4.9 percent in year 2015-16 and to 4.8 percent during April - December 2016. There is reversal in decline of WPI inflation from (-) 5.1 percent in August 2015 to 3.4 percent at end of December 2016 partly because of rise in international crude oil prices and partly owing to adverse base effect.   Although, overall CPI inflation declined in year 2016 from the previous year of 2015, core inflation (exclusive of food and fuel group) remained constant so far this fiscal year.
In external sector, due to slow rate of growth in world's trade and output, India registered decline in export by 1.3 percent in year 2014-15 and 15.5 percent in year 2015-16. The trend of negative growth reversed during April -December 2016, with export registering a growth rate of 0.7 percent compared to corresponding period of 2015-16. USA followed by UAE  and Hong Kong are the India's  top export destinations. On import side, the value of imports declined too.  The value of imports declined from US $ 448 billion in the year 2014-15 to US $ 381 billion in 2015-16, mainly because of decline of crude oil prices resulting in lower level of Petroleum, Oil & Lubricants (POL) imports. Net service receipts declined too in the first half of year 2016. Net private remittances declined by $ 4.5 billion during the same period. Overall, India's current account position was good in the year 2016-17. India's current account deficit has been secularly declining since 2013-14. In the 2013-14 current account deficit was 1.7 percent of GDP which declined to 1.1 percent in 2015-16.  It has further narrowed to 0.3 percent of first half of 2016-17 as compared to 1.5 percent in corresponding period of 2015-16.
The fiscal front statistics show that government is in a much better position compared to earlier years. Fiscal deficit of Centre declined to 3.5 percent of GDP in 2016-17 which is the lowest figure that India has achieved since 2013-14. This has reaffirmed Government's commitment to maintain fiscal deficit figures around 3 percent. The consolidated fiscal deficit of states has kept growing securely in recent years. The consolidated deficit of states has risen from 2.5 percent of GDP in year 2013-14 to 3.6 percent of GDP in 2015-16.  
India is a nation of young people and these young people need to be healthy, suitably educated and appropriately skilled so that they can contribute optimally in building of the nation. Therefore, for the reason, public expenditure on these sectors becomes very crucial. If we look at the expenditure on social services which includes expenditure on health, education and other social services we find that total combined expenditure on these services both by Centre and States as proportion of GDP was 7 percent in 2016-17 which is 0.1 percent higher than expenditure of previous year 2015-16. Out of the total expenditure, education and heath expenditure account for 2.9 percent and 1.4 percent in 2016-17 respectively. The percentage share of education to GDP remained constant between 2015-16 and 2016-17. However, share of health has increased from 1.3 percent in 2015-16 to 1.4 percent in 2016-17.  
For education sector, the survey emphasizes that although there is improvement in access to education and retention of students in the school, the learning outcome of majority of children is still a cause of serious concern. Some of the reasons identified in the survey that cause low quality of education at primary and secondary level of education are teacher absenteeism and the shortage of professional qualified teachers.  The survey states that though the share of teacher component in the total Sarva Shiksha Abhiyan (SSA) budget has been almost doubled from 35 percent to 50 percent between 2011-12 & 2014-15, teacher absenteeism and shortage remain an issue to be addressed. 
In the health outcome section, the survey reveals that there is considerable decline in infant mortality and crude death rate. Total Fertility Rate (TFR) was 2.3 (rural 2.5, and urban 1.8) during 2014. Infant Mortality Rate (IMR) has declined to 37 percent per 1000 live birth in 2015 from 44 percent per 1000 live birth in 2011. However, there is a huge gap in IMR between rural (41 per 1000 live birth) and urban (25 per 1000 live births) areas which is a matter of concern for the policymaker. The Maternal Mortality Ratio (MMR) has declined to 167 maternal deaths per 1000 live births in 2011-13 from 301 maternal deaths per 1000 live births during 2001-03.  There is wide inter-state disparities in MMR. The states like Assam (300 per 1000 live births), Uttar Pradesh  (285), Rajasthan (244) , Odisha (222), Madhya Pradesh (221) and Bihar (208) recorded higher MMR well above the all India MMR rate of 167 per 1000 live births. Apart from these, it is also evident that that there is high  level of anaemia prevalent  among woman in age group of 15-49 years which have a direct correlation with MMR. In Haryana and West Bengal more than 60 percent of Woman suffer from anaemia.  Under the National Health Mission (NHM) government has a special programme to address the problem of anaemia among woman.
The latest employment and unemployment survey (EUS), 2015-16 estimated labour force participation rate (LFPR) at all India level based on usual principal status approach was 50.3 percent. Comparing LFPR between male and female and across states we find that LFPR of female (23.7 %) is much lower than that of male (75.0 %) with a wide inter-state variation. The North-Eastern & Southern states in general have higher female LFPR as compared to Northern states.    Survey report also shows that unemployment among female is much higher than male in both rural and urban areas.  Considering employment by sector and category there is clear shift of employment from primary sector to secondary and tertiary sector between the period 2011-12 and 2015-16. However, growth in employment by categories reflects increase in casual and contract worker. This indicate preference of employers away from regular or formal employment probably because of unfavourable labour laws. The multiplicity of labour laws and difficulty in their compliance have been identified as impediment to the industrial development and employment generation.
The survey has mooted the concept of Universal Basic Income (UBI) as an alternative to various social welfare progamme in an effort to reduce poverty. The survey detailed the benefits and cost of UBI. Based on the six top welfare programme- the PMAY, SSA, MDM,PMGSY, MGNREGA and SBM the survey pointed out that the district which are poor and in greatest need are precisely the one which receive lower share of government resources as compared to richer districts.  The Survey points out that the misallocation of resources results in exclusion of deserving poor and needy from access to government welfare programme benefit , enhance leakages, and increased corruption. The survey argued that UBI is less likely to be prone to exclusion errors as it reduces the burden of administration by doing away the tedious and often complex task of identifying who is poor and who is not. And also it will reduce out-of-system leakages by transferring money directly to bank account of beneficiaries.
The survey emphasizes that the successful implementation of UBI requires effective financial inclusion in which existing JAM (Jan Dhan, Aadhar and Mobile) programme would play a very important role. Second, there should be some cost -sharing arrangement between Centre and State for the programme.
Apart from the UBI, the survey suggests to set up of a centralized Public Sector Assets Rehabilitation Agency to address the problem of Twin Balance Sheet (TBS)/overleveraged companies and bad loan encumbered banks which is dragging the growth of Indian economy. 
(The author is Assistant Professor at Shivaji College, University of Delhi, New Delhi. e-mail : Views expressed are personal.)

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