Economic Survey: Raghuram Rajan has a clear message for the government

The Economic Survey, a report card of sorts on the health of the economy and government policies, clearly points to a more realistic assessment of the issues that have hurt the Indian growth story and its prospects.  

Raghuram Rajan, the Chief Economic Advisor to the government, spells out crucial policy decisions that could have aggravated India's domestic situation and outlines a more conservative, realistic outlook for 2013/14 in the pre-budget Economic Survey.

India's economy is clearly weak, with all major parameters on shaky ground. The savings rate is down. Wholesale Price Index inflation is down, but food inflation is still high. Tax and non-tax revenues are down, the subsidy bill is high, industrial growth is weak, the services sector has declined after growing in the double digits for five years. The scenario is grim, and not all of it can be attributed to the global situation, according to the survey. Domestic policies have played a significant role in derailing investments, eroding savings and in creating an inflationary environment.

While the government's fiscal stimulus boosted demand - consumption grew at an average of over eight per cent between 2009/10 and 2011/12 - it fuelled inflation and a powerful monetary response which slowed consumption demand.

Corporate and infrastructure investment started slowing as a result of investment bottlenecks and tighter monetary policy. The survey clearly states that policy bottlenecks and environmental clearances have slowed investment. There is a surge in the number of projects whose implementation has stalled. As of December 2012, six sectors accounted for about 80 per cent of all stalled projects: electricity, roads, telecom, steel, real estate and mining. About 100 projects worth Rs 50,000 crore were stalled in December 2005, and that number jumped to 600 projects worth Rs 7,50,000 crore in December 2012.

The survey states: "The crucial lesson that emerges from the fiscal outcome in 2011/12 and 2012/13 is that in [times] of heightened uncertainty there is a need for continued risk assessment through close monitoring and for taking appropriate measures for achieving better fiscal marksmanship."

Fiscal marksmanship would also include better subsidy targeting. The survey says: "Open ended commitments such as uncapped subsidies are particularly problematic for fiscal credibility."

The survey works with the Central Statistical Organisation's projection of five per cent growth, and gives an outlook of 6.1 to 6.7 per cent growth in 2013/14, with qualifiers for a normal monsoon, moderation in inflation and a mild recovery in the global economy.

What's refreshing is that the survey also discusses the yawning skill deficit in India, in a chapter that examines where the jobs of tomorrow will come from, and the need to create high-productivity jobs.