ECONOMIC SURVEY 2015 - MARKET GOES VA VA VOOM!

By Ruma Dubey

So the Economic Survey 2015 has been tabled. What does this really mean for people like you and me? Realistically speaking, not much. The Survey is basically an economic synopsis of the year gone by – something like taking stock of the accounts of previous year before we embark on the accounts for the next year.

The Survey basically lets us know how the economy fared in the year gone by and to some extent, gives us possible policy actions required in the Budget, pertaining mainly to Govt finances, external trade, fiscal deficit; major macro-economic data.

This time around, Arun Jaitley presented the Economic Survey which projected an economic growth of 8.5% in 2015-16 and if we read between the lines, it means we could possibly expect some big bang reforms tomorrow.

The Report this time has been optimistic. Indications are that fundamentals of the economy improved in 2014-15. And we have seen through the year how the inflation has scaled down and the report stated that it came down over 6% since late 2013. The rupee has been stable, thanks mainly to the surging foreign inflows. Current Account Deficit too has come down from 6.7% of GDP in previous fiscal to around 1% in FY15.  The report also stated that real GDP, based on the new growth estimates of Central Statistics Office has grown 7.2% since 2013-14.

And looking at the road ahead, the Report remains upbeat. It expects inflation to be leashed in the range of 5 to 5.5%. This in turn could mean that RBI will have enough room this fiscal to bring down interest rates. 

On the growth front, it expects GDP at constant market price, using 2014-15 as the base year, to be around 8.1 to 8.5% in FY16. And this is what has hugely cheered the market. This optimistic estimate has been taken on by the market as an indication for more big bang reforms and investor friendly policy announcements.

What is sobering is the fact on the export front, we continue to face myriad of challenges. The report has clearly shown that share of manufacturing and services export in GDP has remained status quo for the past five years, meaning there is really no growth.

Thus the underlying message which came through loud and clear was that our economy is most certainly on the path of recovery but it is still too early to call it a surging tiger.  The market has clearly upped its Budget expectations post this Survey and also expects Raghuram Rajan to pay heed and usher in a lowering interest rate cycle.  Having said all this, one cannot but urge the Govt t go for some innovative thinking to boost the primary sector as food grain production remains below expectations. Many are saying that the days of Vajpayee Govt are back and let us hope these words prove prophetic!

Highlights of the Economic Survey:

• FY15 Current Account Deficit at 1.3 to 1.4%
• FY16 GDP at 7 to 7.8% and CPI range at 5 to 5.5%; expects India to grow over 8% driven mainly by domestic demand
• Fiscal deficit target at 4.1%
• Estimated food grain production in FY15 at 257.07 million tonnes and to exceed that of past 5 years by 8.5 million tonnes.
• Concerns remain about subdued global demand but feels that worst is behind us
• Greater public investment in Railways to improve competitiveness of Indian manufacturing and public investments will remain major growth engine for Railways in short term
• Expects oil price to remain low
• Further cut in subsidy and fuel is part of the reform process
• Food subsidy at Rs 107,823.75 crore in 2014-15, a 20% (YoY) rise
• Calls for creation of National Common Market in agricultural commodities
• Foreign portfolio flows have stabilized the rupee, exerting downward pressure on long-term interest rates
• Introduction of the GST and expanding direct benefit transfers can be game-changers.
• Aims to build forex reserves in the range of $750 billion-$1trillion in long term
• JAM Number Trinity – Jan Dhan Yojana, Aadhaar, Mobile can eliminate leakages and with minimal distorting effects.
• Stalling of infra projects seems to have plateaued
• Expenditure control with growth recovery and GST will ensure that medium-term targets are met
• Expectation that the private sector will drive investment needs to be moderated