India Economic Survey 2017: Populism, not profligacy: What survey says about Budget(Comment)

Madhuchanda DeyMoneycontrol ResearchThe Economic Survey presented in the Parliament sets the tone for the Union Budget. Tuesday’s document touched upon several important areas: resource generation, redistribution, repairing bank balance sheets, reducing the fiscal deficit and cutting unemployment. While expressing concern about inadequate social safety net, the policy also stresses the importance of fiscal prudence.Notwithstanding the populist undertone of the President’s speech that preceded the release of the Survey, we do not expect the fiscal math to go awry.The forecast on real GDP growth in the range of 6.75 percent-7.75 percent for FY18 should translate into a nominal growth of 11-12 percent for the coming fiscal year. The forecast comes with a caveat of three imponderables – lingering impact of demonetisation beyond the current fiscal, a rise in crude prices and the impact of GST.While acknowledging the short-term hardship, the policy lauds the long-term benefit of demonetisation, as a 'radical shift in stance'. Hence, follow-up drives on anti-corruption should continue.The undertone of the policy is one of a supportive fiscal policy rather than fiscal profligacy. Thus, a moderate dose of fiscal support to counter the weakness of demonetisation looks to be on the cards. However, it also advocates using the windfall (comprising the unreturned cash and additional receipts under the Pradhan Mantri Garib Kalyan Yojana) to strengthen the government’s balance sheet rather than being used for government consumption, especially in the form of programmes that create permanent entitlements.Thus, while hailing the idea of Universal Basic Income (UBI), the policy suggests it as an alternative to the various social welfare schemes in an effort to reduce poverty, and not as a fresh handout.The suggestion to use the windfall to create a public sector asset reconstruction company to address the twin balance sheet problem (public sector banks & over leveraged corporates) is a welcome move.The document also touches upon strategic disinvestment, tax reform and subsidy rationalization. Thus, some tax rate rationalisation and acceleration in the pace of corporate tax reduction that markets are eagerly waiting for might find a place in the FM’s Budget speech.Finally, the imperative to support employment creating businesses has been well articulated and industries like apparel and leather have found special mention. The Budget could take the agenda forward and grant fiscal concessions to businesses generating employment.