Economic Survey: GDP growth rate for 2018-19 at 7-7.5%; GST added tax-payers but from lowest slabs

DailyBiteJan 29, 2018 | 16:32

Economic Survey: GDP growth rate for 2018-19 at 7-7.5%; GST added tax-payers but from lowest slabs

On the first day of the Budget Session in Parliament, Union finance minister Arun Jaitley tabled the annual Economic Survey for 2018-19.

On the first day of the Budget session in Parliament, Union finance minister Arun Jaitley tabled the annual Economic Survey for 2018-19, authored by chief economic adviser to the Union ministry of finance, Arvind Subramanian.

While the survey lays down the premise of and sets off expectations from the Union Budget, it also red-flags areas that need attention. This year’s Economic Survey, in the same vein, is a mixed bag of achievements, loaded with caveats, and in all is a modest projection of the economic performance in the year ahead.

At a glance

At the outset, the major takeaways include a slight improvement in the GDP growth rate from 6.75 per cent in 2017-18, to 7-7.5 per cent in 2018-19, indicating a recovering climate, if not a fully buoyant one. It also says that the gross value added (GVA) growth rate for fiscal year 2018 has been 6.1 per cent, a 0.5 per cent reduction from last year’s 6.6 per cent.

Goods and Services Tax (GST) has increased indirect tax-payers but from low income groups. Revenue collection from GST is picking up after sliding in the first six months, the survey says. In addition, it predicts a rebound for private investments, while exports boost is likely to add to the uptick.

Agriculture support, privatising Air India, concluding bank recapitalisation, adding more jobs will be primary policy agendas. High oil prices worldwide would be a matter of concern, as would be the “meta” Indian preference for male children.

Growth revival and GST

The Economic Survey calls the GST “transformational”, and hails the “decisive addressing” of the “twin-balance sheet problem” through resolution under the new Indian Bankruptcy Code as well as the bank recapitalisation package. Subramanian says growth is picking up after “temporary decoupling”, but nascent macro pressures remain. There’s uptick in manufacturing activity, investment and exports, which means while recovery is underway, the pressures can act as spoilers.

More tax-payers

While GST revenue collection is seeing a 12 per cent growth, there has been a significant increase in the number of both indirect and direct tax-payers after demonetisation and GST. About 1.8 million new tax-payers but mostly from low income brackets were added, the survey says.

The survey bats for GST as an example of cooperative federalism technology, and recommends use for reforms in agriculture, power, direct benefit transfer. Moreover, batting for Indian Bankruptcy Code and resolution, CEA Arvind Subramanian said India went from “crony socialism to stigmatised capitalism”, and therefore addressing the twin balance sheet problem (NPAs and regular assets of banks) was important. He also point to a large increase in voluntary compliance under GST.

However, the Economic Survey has underlined that India has the lowest share of direct taxes in government revenue (after China). But surely this can be accounted for by the enormous income and wealth gap as recorded in the Oxfam Davos report? 

 Stock market performance

Saying that the large portfolio allocations away from gold and real estate and towards stocks, and higher interest rates warrant “heightened vigilance”, the survey says the capital raising from public and private sector units has increased, but hasn’t helped low cost of stock market capital.

Exports, textiles sector

While textiles contributed significantly to the exports boost (even as textiles workers and traders suffered because of both demonetization and GST), the Survey shows the sector helped India during the crunch time.

On the overall exports chart, the concentration of the exports pie by the top one per cent of exporters (about 38 per cent) has been noted. However, it has been mentioned that the figure is lower than other countries like USA, Brazil, Germany, Mexico, among others.

GST data has also shown that those states with significant international exports are richer than their counterparts with more domestic and inter-state exports. Gujarat and Karnataka feature prominently in the better-off states, with high export-to-GDP ratio.

Inter-state trade and tax collection

As much as 60 per cent of GDP comes from inter-state trade, which is up from 54 per cent calculated last year. But Indian states collect lower share of revenue by way of direct taxes than in other countries with a federal structure.

NPA crisis and the investment climate

Investment slowdown has a direct bearing on growth rate, and therefore needs urgent attention, says the survey. The investment dip has been linked to the twin balance sheet problem weighing the banking sector down.

New factoids presented by Economic Survey 2018

A bunch of new facts has come to light in the Survey 2018, which includes the higher-than-expected number of people engaged in formal, non-agricultural jobs: between 30-50 per cent.  In addition, the strong preference exhibited by Indian society towards male offsprings is something that the survey highlights and criticises strongly.

There’s substantial “avoidable litigation” in the tax arena, and the footprint of climate change is more extreme in agriculture than in other areas.

The survey also praises Aadhaar and says more Aadhaar-seeded Jan Dhan accounts have been added in the years since December 2015, now standing at 75 per cent of them all.   

A gist of the Survey says:

“Major reforms were undertaken over the past year. The transformational Goods and Services Tax (GST) was launched at the stroke of midnight on July 1, 2017. And the long-festering Twin Balance Sheet (TBS) problem was decisively addressed by sending the major stressed companies for resolution under the new Indian Bankruptcy Code and implementing a major recapitalisation package to strengthen the public sector banks.”

“As a result of these measures, the dissipating effects of earlier policy actions, and the export uplift from the global recovery, the economy began to accelerate in the second half of the year. This should allow real GDP growth to reach 6¾ percent for the year as a whole, rising to 7-7½ percent in 2018-19, thereby re-instating India as the world’s fastest growing major economy. Against emerging macroeconomic concerns, policy vigilance will be necessary in the coming year, especially if high international oil prices persist or elevated stock prices correct sharply, provoking a “sudden stall” in capital flows.”

“The agenda for the next year consequently remains full: stabilising the GST, completing the TBS actions, privatising Air India, and staving off threats to macro-economic stability. The TBS actions, noteworthy for cracking the long-standing “exit” problem, need complementary reforms to shrink unviable banks and allow greater private sector participation. The GST Council offers a model “technology” of cooperative federalism to apply to many other policy reforms.”

“Over the medium term, three areas of policy focus stand out: Employment: finding good jobs for the young and burgeoning workforce, especially for women. Education: creating an educated and healthy labor force. Agriculture: raising farm productivity while strengthening agricultural resilience. Above all, India must continue improving the climate for rapid economic growth on the strength of the only two truly sustainable engines — private investment and exports.”

Last updated: January 29, 2018 | 16:32
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