Economic Survey 2015-16


Ajit Kumar AJIT KUMARWISDOM IAS, New Delhi.

Finance Minister Arun Jaitley tabled the Economic Survey 2015-16 in Parliament on February 26, 2016, which projected GDP growth of India in the range of 7 to 7.75 per cent in the the next financial year ended 2017. The survey projected a growth of 7.6 per cent in 2015-16 and also said that the growth rate of 8% or higher possible in next 2 years, given macroeconomic stability. The survey also added the fiscal deficit target of 3.9 per cent for 2015-16 seems achievable.

According to the Survey, there will be a little impact on inflation due to the recommendations in the 7th Pay Commission and said it will not destablise prices. The Reserve Bank of India will meet 5 per cent inflation target by the end of March 2017.

There was also proposal to widens tax net 5.5 per cent of earning individuals to over 20 per cent.
The Survey called for a review and phasing out of the tax exemption raj that benefited the richer private sector and a “reasonable” taxation for better-off individuals. A cross-country comparison shows that India currently has the lowest number of taxpayers, adding that nearly 85 per cent of the economy still remains outside the tax net. Just 5.5 per cent of earning individuals are in the tax net and the ratio should be raised to a desirable estimate of about 23 per cent.

Making a study of the data since Independence, the Survey said that the exemption thresholds have been raised much more rapidly than underlying income growth resulting in a widening of wedge between average income and threshold limit. One of the low hanging fruit would be to refrain from raising exemption thresholds for the personal income tax, allowing natural growth in income to increase the number of taxpayers. In some ways, this would be reform through inaction.

The Survey states that despite volatility in global financial markets, the domestic equity market has been relatively resilient during 2015-16 compared to the other major emerging market economies. Benchmark indices BSE Sensex and NSE Nifty slid over 20 per cent in the past one year due to several factors such as rupee depreciation, weak global markets, selling pressure by foreign institutional investors and China yuan devaluation.

The net investment by foreign institutional investors/FPIs in the Indian market stood at Rs 63,663 crore in 2015 as compared to Rs 2,56,213 crore in 2014.

During 2015-16, year on year growth in gross bank credit outstanding has remained around 10 per cent. The sluggish growth can be attributed to incomplete transmission of the monitory policy, unwillingness of banks to lend credit on account of rising non-performing assets (NPA), and more attractive interest rates for borrowers in the bond markets.
The year on year growth in time deposits fell to 10.6 per cent in December 2016. This is because household saving are channelised to other areas like gold and real estate. The slowdown in time deposits has been slowing the growth of bank credit as time deposits remain the most important and cheaper source of banks funding.

Schemes such as Pradhan Mantri Suraksha Bima Yojana (PMSBY), Pradhan Mantri Jivan Jyoti Bima Yojana (PMJJBY), and the Atal Pension Yojana(APY), – were launched in 2015 in the insurance and pension sectors for creating a universal social security system for all Indians, especially for the poor and the underpreviledged.

As a result, the number of new basic saving bank deposit accounts rose considerably during the year. The number of such account increased to 44.1 crore for the period ending September 2015 and total number of banking outlets went up to 5.67 lakhs.

Durning April-December 2015, a total of 112.82 lakh members have enrolled under the National Pension Scheme.
India can become the leading investment destination owing to its robust macroeconomic fundamentals. The survey has pointed out that Indian markets have “rebounded time and time again”, and it is hoped that as the global financial market settle down, Indian market will attract foreign investments in a big way.
 
The survey also stressed on the falling growth rate of agriculture in the country owing to drought in the previous two consecutive years, decline in production and area sown of major crops. According to the government, the agriculture sector needs a transformation to ensure sustainable livelihoods for the farmers and food security for the population.
 
Following are Highlights of the Survey:

FISCAL DEFICIT

- 2015/16 fiscal deficit seen at 3.9 percent of GDP seems achievable

- 2016/17 expected to be challenging from fiscal point of view

- Credibility and optimality argue for adhering to 3.5% of GDP fiscal deficit target

- Time is right for a review of medium-term fiscal framework

- The government’s spending priorities must include essential services that all citizens consume: public infrastructure, law and order, less pollution and congestion.

INFLATION

- CPI inflation seen around 4.5 to 5% in 2016/17

- Low inflation has taken hold, confidence in price stability has improved* Expect RBI to meet 5 percent inflation target by March 2017

- Prospect of lower oil prices over medium term likely to dampen inflationary expectations

- Low inflation has taken hold, confidence in price stability has improved

CURRENT ACCOUNT DEFICIT

- 2016/17 current account deficit seen around 1-1.5% of GDP

CURRENCY

- Rupee's value must be fair, avoiding strengthening; fair value can be achieved through monetary relaxation

- India needs to prepare itself for a major currency readjustment in Asia in wake of a similar adjustment in China

- Gradual depreciation in rupee can be allowed if capital inflows are weak

TAXES

- Reasonable taxation of the better-off, regardless of where they got their income from — industry, services, real estate or agriculture — will also help build legitimacy

- Proposes widening tax net from 5.5% of earning individuals to more than 20%

- Tax revenue expected to be higher than budgeted levels in FY15/16

- Easiest way to widen the tax base would be not to raise exemption thresholds

- Favours review and phasing out of tax exemptions

- It also suggested that property taxation needs to be developed as sparse systematic data on property taxation shows how little attention has been given to this tax. Property taxes are especially desirable because they are progressive, buoyant and difficult to evade, since they are imposed on a non-mobile good which can be relatively easily identified. Making a case for “higher property tax rates”, the Economic Survey said it would put sand in the wheels of property speculation.

BANKING & CORPORATE SECTOR

- Estimated capital requirement for banks likely around Rs 1.8 trillion by 2018/19

- Corporate, bank balance sheets remain stretched, affecting prospects for reviving private investments

STOCK MARKET

- Indian stocks are relatively resilient despite volatility in the worldwide financial markets and the country can become a leading investment destination going ahead, said the Economic Survey.

- The (Indian) market has rebounded time and time again, and it is hoped that as the global financial markets settle down, India can become the leading investment destination owing to its robust macroeconomic fundamentals,” as per the 2015—16 report card of the state of the economy

- Despite volatility in global financial markets, the Indian equity market has been relatively resilient during this period compared to the other major emerging market economies

-The average borrowings by banks have increased significantly in the immediate aftermath of US fed rate hike, resulting in appreciation of the rupee. However, subsequent to easing of liquidity conditions, the rupee started depreciating

- On trends witnessed in capital markets, the Survey said that during the fiscal 2015-16 till December the resource mobilisation through the public and right issues has surged rapidly as compared to the last financial year. During this period, 71 companies raised Rs. 51,311 crore from the capital market compared to Rs. 11,581 crore during the corresponding period of 2014-15. Fund garnered by mutual funds also increased substantially to Rs. 1,61,696 crore from Rs. 87,942 crore

- During 2015-16 so far, the Indian equity market has remained subdued. The BSE’s benchmark Sensex declined by 8.5 per cent (till January 5, 2016) over March 2015, mainly on account of turmoil in global equity markets

- The net investment by Foreign Portfolio Investors (FPIs) in the Indian market was at Rs. 63,663 crore in 2015 as compared to Rs. 2,56,213 crore in 2014

SUBSIDIES

-  Subsidies amounting to Rs. 1 lakh crore paid to well-off need to be scaled back.



- Subsidies will be below 2% next fiscal

GOVERNANCE


- The state should prioritise on reducing corruption and government’s effort to improve transparency through transparent and efficient auctioning of public assets will help create legitimacy and over time strengthen fiscal capacity

CHALLENGES AHEAD

- The Survey said economic development in India lags political development

- Independent India has averted famines, but chronic malnutrition is still a challenge

- The Indian state can organise mega events, but routine safety for women has turned out to be more difficult to achieve

- The Indian state responds effectively to floods and tsunamis but finds water and power metering more challenging 


Friday, 26th Feb 2016, 07:24:34 AM

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