ECONOMIC SURVEY FY17 - NOTHING TO CHEER, NOTHING TO SCREAM

By Ruma Dubey

So the Economic Survey FY17 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 document is basically an annual statement which is put together by the Finance Ministry of India, showcasing the economic development during the course of the year. The draft of the survey is prepared by Department of Economic Affairs and cleared by Chief economic Advisor and the secretary Economic Affairs. The final version is vetted by Finance secretary and Finance Minister. The Union Budget is a statement for the future while the Economic Survey is a statement of the past fiscal.

This time around the Economic Survey projected an economic growth of 8% over the “next couple of years”. The overall mood of the Survey was very somber, not like the earlier one, which held the false promise of big bang reforms.

Here, the Survey talks about all the economic woes that we face – the global slowdown in demand, the falling crude oil prices, the declining exports, the stressed balance sheets of banks and corporate India, currency adjustments on account of China. Thus the underlying message which came across is that in FY17, growth could face considerable headwinds if global demand remains weak.

But when one reads the projections, it seems to belie all this and projects a picture of roses and cakes. Growth in FY16, despite all the circumstances is expected to be at 7-7.75%. The FM is confident that fiscal deficit will be fully met – 3.9% of GDP for FY16 and set the target of 3.5% for FY17. The FM also said that current account deficit is also likely to be more than fully finances via stable flows. The FY17 current account deficit is seen around 1-1.5% of GDP. The most “reassuring” statement of all – the Seventh Pay Commission will not destabilize prices.

Another important aspect which we can infer from this Survey is that tax receipts will be the main source of revenue for the Govt. The FM proposes widening tax net from 5.5% of earning individuals to over 20%. As such we all are bracing ourselves for a 2% hike in service tax from 14% to 16%. So how will all these tax increases not stoke up inflation? If major salary hikes and doles are meted out, money has to come in from somewhere, isn’t it? Naturally, we all will pay the price.

Highlights of the Economic Survey:

• Economy would grow 7-7.75% in the fiscal year to March 2017 with downside risks 
• Current Account Deficit seen at 1-1.5% of GDP for FY17.
• Fiscal deficit seen at 3.9% of GDP seems achievable
• FY17 CPI Inflation seen in range of 4.5-5% 
• Expect 8% Growth In Next Couple Of Years
• To widen tax net from 5.5% of earning individuals to over 20%
• Current A/c deficit likely to be more than fully financed via stable flows
• Expect RBI to meet 5% inflation target by March 2017 
• Exports slowdown may continue for a while before picking up in FY17 
• The survey indicates that if recommendations of the 7th Pay Commission are implemented, it will complicate the FY17 fiscal task.
• Low inflation has taken hold, confidence in price stability has improved
• Gradual depreciation in rupee can be allowed if capital inflows are weak
• India needs to prepare itself for a major currency readjustment in Asia in wake of a similar adjustment in China
• Tax revenue expected to be higher than budgeted levels in FY15/16
• Favours review and phasing out of tax exemptions
• Estimated capital requirement for banks likely around Rs.1.8 trillion by FY19
• Govt could sell off certain non financial companies to infuse capital in state-run banks
• To make available Rs.70,000 crore via budgetary allocations during current, succeeding years in banks.