JULY 13, 2015

By TIOL Edit Team

THE Finance Minister Arun Jaitley is exuding confidence about economic growth prospects. The other day he thanked the rain gods for good monsoon so far. He believes Indian economy would log 8% growth in 2015-16.

As reportedly put by him on 12th July, "with the reform process ongoing, with some more significant changes like GST (Goods and Service Tax) in the pipeline, increased infrastructure spending this year, emphasis on smart cities, when all these initiatives get down to the field, then India's aspiration to cross that 8 per cent growth hump and get on to the 8-10 per cent growth targets may be something that is not out of sight, something which may be eminently achievable."

Mr. Jaitley cited robust growth in indirect receipts to drive home the point that total revenue would be comfortable in current fiscal. One set of data should not form the basis for robust optimism. As only first quarter has passed, irrational exuberance about growth prospects should be avoided.

Monsoon has so far been almost normal but has more than two months more to go. We have to see how widespread have been the rains at the end of the season. And we have to also factor in the extent of breaks (dry spells) between two downpours. The dry spells, when long, affect crop growth in rainfed areas. Moreover, certain economic data, observations from other reputed agencies and fragile global financial situation calls for cautious optimism.

The latest revenue data available on the website of Controller General of Accounts (CGA), total tax revenue in May 2015 registered 30.58% decline over corresponding period of previous fiscal. The Ministry should explain this decline.

According to CGA's National Summary Data 2015-2016 as on 30th June 2015, the non-tax revenue, however, grew by 229.53% (which is an exception), thereby resulting in total revenue growth of 35.9% in May 2015. This shows that total tax revenue data is a cause for concern.

Another statistics that implies caution on growth outlook is the alarming trend of unabated decline in investment proposals since 2011. According to Care Rating, the proposed amount of investments has decreased from Rs. 15.4 lakh crore in 2011 to Rs. 4.05 lakh crore in 2014 and further to Rs. 1.5 lakh crore for the five months of 2015 as compared to Rs. 1.23 lakh crore in corresponding period previous year.

It says: "The number of investment proposals has come down to 1,843 in 2014 as against 4,336 in 2011. During the first five months of 2015 it was 826 compared with 868 during the corresponding period in 2014. Thus preliminary data suggests that the investment climate at the national level has deteriorated quite consistently over the last half decade."

It adds: "a lack luster corporate performance in FY15 warrant a fresh look at the trends in investments in India."

The trends in gross capital formation should also be factored in any initiative to estimate growth prospects. The latest data for this vital indicator is hard to by.

Another credit rating major has also pitched for cautious optimism. Moody's, in its latest quarterly report ‘Inside India' projects: "India's weakened rural economy to remain subdued through the fiscal year ending March 2016 (FY 2016), particularly if the risk of below-average monsoon rainfall materializes."

Without deviating from its earlier projected GDP growth of 7.6%, A Moody's release says: "A sustained soft patch for India's rural economy would weigh on private consumption and non-performing assets in the agricultural sector, a credit negative for the sovereign and banks."

It has observed that almost half of the respondents in its outlook poll identified "sluggish reform momentum as the greatest risk to India's macroeconomic story".

This brings us to the need for an objective assessment of policy paralysis that been seamlessly assimilated by NDA Government from UPA.

A lot has been written on this subject. The Finance Ministry should muster courage to list all such instances of delays in announcement of promised policies and in implementation of the announced ones.

It ought to issue a white paper, analyzing the number of missed economic opportunities including jobs foregone due to various delays.

If the Government does a test audit of delays at different levels in project approvals chain, it would get an idea of the specific segments that needs be reformed.

Put simply, a few good spells of rains and hype over GST and smart cities cannot constitute a sound ground for Indian economy to pole-vault to double digit annual growth. The Government should pursue vigorously comprehensive reforms in the entire socio-economic domain.