Economic Survey 2015 Analysis for Civil Services Aspirants

Economic Survey 2015 Analysis for Civil Services Aspirants

Significance for UPSC aspirants: GS Paper III without Economic survey will be always incomplete. It covers the major section of paper III from the economy to the developments; and agriculture, PDS etc.

Two Broad themes: “creating opportunity and reducing vulnerability.”

Quick grasp-

  • Projected GDP growth rate of 8.1-8.5% for 2015-16 against 7.4% in 2014-15.
  • Inflation declined by over 6% points
  • CAD (current account deficit) drop from 6.7% to 1% of GDP.
  • Fiscal deficit (FD) target of 4.1% and also to achieve 3% of GDP.
  • Stabilised rupee because of foreign portfolio flows.
  • Expenditure reform- from consumption (reducing subsidies) to investment. Currently 4.24% of the GDP on subsidies. (JAM Trinity: JDY+Aadhaar+Mobile for targeted & less distorted delivery)
  • FFC- States will have 42% from through tax devolution and 65% aggregates (tax + grants)
  • 4D solution for policy constrained banking industry: Deregulation, differentiation, diversification, disinterring.
  • Deregulation by addressing SLR and PSL, differentiation within PSBs in relation to recapitalization, shrinking balance sheets & ownership), diversification (source of funding within and outside banking) and disinterring (improving exit mechanisms)
  • Addressing key problems: ramping up investment, rationalizing subsidies, creating a competitive, predictable, and clean tax policy environment, and accelerating disinvestment.
  • Equity surge (Sensex and Nifty): 10-year government securities, and contributed to the surge in equity prices (31% since Apr 2014)
  • RBI act to amend to setup a monetary policy committee.
  • Domestic black money: a new benami transaction bill to be introduced

What is economic survey means:

It’s a flagship annual document presented by Finance Ministry every year just before the Union budget. It reviews the Indian economy by looking at Economic Outlook, Prospects, and Policy Challenges. It also provides the short and medium and short term prospect of the economy. Survey presented to both the house of parliament during Budget Session, generally during Feb month of each year.

Coverage of Economic Survey 2014-15:

Inspired by the IMF’s World Economic Outlook, this year economic survey presented in two volumes with total of 19 chapters covering the issues from main economic framework to various sectors of economy like agriculture, industry, services; to climate change and sustainability and human resources. Exclusive coverage for the ‘Make in India’, India’s Green Action, and Fourteenth Finance Commission (FFC), make it more important for an UPSC aspirant to use it for enriching the answers during mains examination.

Primarily, Volume 1 discusses the outlook and prospects and Volume 2 describes recent developments in all the major sectors of the economy. Conclusively, Volume 1 is forward-looking with perspectives from recent past which is the subject of Volume 2.

Snapshot: “Urging for fiscal consolidation by bringing down the FD (fiscal deficit), Expenditure rationalisation, enhanced revenue generation to propel the economy”

With fundamental objective of “wiping every tear from every eye”, India has reached a sweet spot to launch double-digit medium-term growth trajectory. More stable macro-economy, various reforms with strong political mandate, recovering economy, favourable external environment and challenges in other economy has made India a comfortable destination for investors.

For wiping tears well-functioning, well-targeted, leakage-proof safety net which will both provide (minimum income) and protect (against adverse shocks). In this regard the intention of how best to “provide and protect,” and technology-based direct benefit transfers will play an important role.

Long-run growth determined by perspiration and inspiration, investment and efficiency, respectively. For long run private investment must remain the main engine. But the cloudy environment of Indian private investment remained sluggish in last decade. Various factors played the role of holding back the investment, namely, weak corporate balance sheets, an impaired banking system, difficulty of exit, the deficiencies of the PPP model in infrastructure.

For short to medium term- public investment, especially by the railways, will have to play a catalytic role.

‘Make in India’ initiative is trying to achieve the manufacturing and trade based engines of growth, as happened in the post-war period for most economies, especially in Asia.

The objective of protecting the vulnerable must take the note of climate change, gender equality for better growth, development and equality of opportunity.

Centre-state fiscal relations have dramatically re-shaped by acceptance of recommendations of the Fourteenth Finance Commission (FFC). With 42% tax devolution to state from the divisible pool of Centre’s Net Taxes, states’ aggregate share (taxes plus grants) of the divisible pool at around 65%. Now the funding will no longer be scheme-and-grant-based, it would rather be devolution-based and with that states have got the more spending freedom.

FFC has also recommended that the central transfers to states must be at least 49% of gross central revenue receipts during 2015–20. Another larger recommendation is to revitalise and strengthen another constitutional body, the Inter-State Council, for providing a forum for discussion as well as decision-making to establish the new cooperative federalism.

With all these, Economic Survey is Notable for three reasons - sense of optimism, fiscal discipline, Subsidy management.

Mains questions:

  1. In the past, it’s not only foreign investors who deferred from investing in India rather domestic investors too. What are the recent developments which are going to attract the attention of investors?

  2. Fourteenth finance commission is unique as compared to earlier Finance commissions? Critically analyze the important contribution of fourteenth finance commission.

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