Economic Survey has some novel ideas for both FM and PM
Too many journalists have, over the years, caused serious damage to their reputations by trying to get budget signals from the Economic Survey—both, after all, are produced by the same ministry—yet, they persist. Like any good newspaper, it would appear, the finance ministry too is divided into church and state—that’s news and views, for the uninitiated—and it is impossible to divine happenings in one from the other. Every year, Surveys recommend a reining in of subsidies and, one day later, the finance minister either raises them or fails to do anything—to that extent, this Survey is no different. Indeed, while the government is a big proponent of direct cash transfers and the Jan Dhan-Aadhaar-Mobile (JAM) trinity, as the Survey acknowledges, save for LPG, JAM itself is jammed. Though the Survey has good data on R1 lakh crore of subsidies to the rich—two-thirds of the R11,900 crore PPF subsidy goes to the top 2-3% of the population—some part of this is legislated; the Food Security Act (FSA) mandates that two-thirds of the population gets vastly subsidised wheat and rice. While FSA is a UPA legacy, prime minister Modi’s decision to withdraw LPG subsidies—R40,151 crore—to those earning over R10 lakh applies to under 3% of the population. In other words, it is prudent to assume the budget won’t do much on this front.
This is not to disparage the Survey since it has some top-class analysis should Modi chose to listen. On WTO, along the lines that FE has been espousing, it points to India’s policy of ‘lofty theologizing’ being misplaced and needing to cede to ‘mundane haggling over hides and hibiscuses’—while India has made a big deal of needing special safeguard measures, the Survey says India needs this for a small fraction of its produce like milk, dairy, fruits and raw hides. Similarly, any PM looking to boost manufacturing has to be mindful of the problems “marketism without exit” creates—with free exit ensuring only the fittest survive, a 40-year old plant in the US is 8 times as large as a new one while this number is a mere 1.5 for India. As for encouraging formal jobs, the Survey echoes what Teamlease founder Manish Sabharwal wrote in FE—mandatory EPFO/ESI deductions take away 45% of a lowly paid employees’ salary.
Perhaps the suggestion that will be taken most seriously is that relating to using part of RBI’s balances—Rs2.2 lakh crore in the Contingency Fund and R5.6 lakh crore in the Revaluation Account, among others —to partly fund the recapitalisation of PSU banks; a cash-strapped government will welcome the ingenuity in ferreting out all cash that can possibly be labelled as spare in the government system. This would not be a bad idea if, as part of the cleaning up, there was a combination of privatising banks and putting in fool-proof systems to prevent cronyism. The problem is that while the government’s mind is closed to privatisation and not averse to piling onerous social obligations on PSU banks, bad loans are an inescapable part of growth—PSU banks have larger NPAs than private ones only because they lend to industry/infrastructure. Giving the government an easy way out from taking tough decisions can never be a good idea.