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The Indian Government’s Economic Survey for 2017-18 was put out on January 29th, 2018 which is the flagship document authored by the Chief Economic Advisor, Arvind Subramanian, each year, providing facts, observations, plans and analysis of the state of the economy. The headline number of the survey was the projected growth rate of 7-7.5 percent in the next fiscal year (2018-19), compared to 6.75 percent in the current year, as the brunt of demonetisation and Goods and Services Tax (GST) withers, which is faintly ahead of the 7.4 percent pegged by the IMF[1]. Another centre of attention was the pink colour of the survey document, which reiterated gender issues as the Economic Survey notes a skewed sex ratio in favour of males. On the bulletin for the coming year, the survey has enlisted the support agriculture sector needs, the reforms in the GST, completing the twin balance sheet (TBS) actions, privatising Air India, and foiling all threats to macroeconomic stability.

The Economic Survey has tabled the following figures:

  1. The survey brings out 18 lakh as the increase in the number of individual tax filers, due to the combined effect of demonetisation exercise and the rolling out of the GST. On the indirect tax front, there has been a 50 percent increase in the number of indirect taxpayers, especially by small enterprises in order to avail the benefit of input tax credit. This translates to a substantial “3.4 million new taxpayers”, the report said[2]. Although the registered number of taxpayers has gone up, total tax revenue has increased only marginally because almost all the new filers reported incomes that were less than the income tax threshold of Rs 2.5 lakh. Within the total tax revenue, the dipping GST revenue has been a big worry for the government. In October 2017, GST revenue slipped by almost 10% to Rs 83,346 as compared to revenue in September. Even in November 2017, GST revenue stood at Rs 80,808[3]. Despite the increased number of taxpayers, the government will be facing a lot of heat if the revenue falls below the previous indirect tax model. Other than the individual taxpayers, in case of new enterprises coming under the umbrella of the GST system, the survey notes that most of the firms aren’t engaged in business-to-consumer (B2C) transactions, but undertake business-to-business (B2B) transactions or are involved in export activities. The EconSurvey also acknowledges poor implementation of the GST, noting that “uncertainty will not be definitively lifted until the GST stabilises later this year”.
  1. The report also points out that of all tax disputes contested, the tax department has a success rate of below 30 percent. The survey said that the high number of delays and pendency of economic cases in the Supreme Court, Economic Tribunals and Tax department are taking “severe toll” on the economy, in terms of stalled projects, mounting legal costs, contested tax revenues and reduced investment. Tax litigation of indirect and direct taxes amounts to nearly Rs 7.58 lakh crore- that is 4.7 percent of India’s GDP, and more than Rs. 52,000 crore worth of government infrastructure projects have been stalled by various orders of the courts, the Survey estimated. About 66 percent of the pending cases, each of which is for an amount less than Rs 10 lakh, account for just 1.8 percent of the value at stake in the litigation[4]. The delay and pendency also increase the workload of the judiciary. A major problem with tax litigation remains the fear of future enquiry having the potential of landing the tax officer into trouble for not filing the case in case of discrepancies. Given that the problem of tax litigation was highlighted in the Economic Survey, the government should’ve addressed it in the Union Budget, however, the 2018 Budget failed to provide any significant proposals at reforming the tax administration system.
  1. It was in 2014-15 Economic Survey, when Arvind Subramanian had said that double-digit growth for India’s GDP was within reach. In this year’s Survey, the CEA recognized that demonetisation and GST have had “temporary impact” on the economic growth, but affirmed that growth rate could rebound after hitting a four-year low at 6.75 percent due to “corrective measures”. Subramanian described the events of the first half of this fiscal as ‘temporarily decoupling, decelerating as the rest of the world accelerated’ from the synchronised global recovery - the best since 2010 - and in the second half, aligning with it. The economy is expected to revive from these monetary shocks as projected real GDP growth stands at 7-7.5 percent, thereby, “reinstating India as the world’s fastest-growing major economy”.
  1. While the survey gives a brighter outlook for coming months, the fact that the fiscal deficit has ballooned and overshot the target, it proves that it's not all-rosy for the Indian Economy in the coming months. The Modi government hasn’t been able to contain the deficit in three years, despite low international oil prices. The Centre’s fiscal deficit has already crossed the budgeted figure of Rs 5.5 trillion by 12 percent till November 2017 which is far above the average of the last five years at 89 percent of the Budget Estimates. Presenting the Budget 2018, Finance Minister Arun Jaitley has pushed the fiscal deficit targets from 3.2 percent to 3.5 percent of the GDP- Rs 5.95 lakh crore. Adding to the problem, the fiscal deficit is expected to further increase as GST revenue is prophesied to drop as the government continues to shift goods and services to lower tax slabs.[5]
  1. The Economic Survey has also estimated that agriculture sector will grow at 2.1 percent in 2017-18[6]. The government has also set a goal to double the income of farmers by 2022, for which the government has cited several new initiatives like Pradhan Mantri Krishi Sinchai Yojana (PMKSY), Pradhan Mantri Fasal Bima Yojana (FMBY), soil health card etc. Interestingly, the ambitious dream of doubling farmers income was brought into the public domain in the year 2015. Given the current growth rate and the timeline set by the government, the NITI Aayog and the Agriculture Ministry essentially needs to attain a growth rate of nearly 20 percent in the next four or five years, when the growth of the agriculture sector is itself down from 4.1 percent as estimated in 2016-17 Economic Survey[7]. Although CEA has pointed that some “radical changes” are required to boost growth in Agriculture growth, the expansion rate of 20 percent seems impossible to achieve.
  1. In a chapter titled ‘Investment and Saving Slowdowns and Recoveries’ in the Economic Survey, Arvind Subramanian explained the trends during the periods of investment slowdown in the country. The CEA points out that the ratio of investment to GDP (Gross Fixed Capital Formation to GDP) was 26.5 percent in 2003, climbed to 35.6 percent in 2007, and stood at 26.4 percent in 2017, which is a huge 8 percentage point drop.[8] The report also projects the trend of recovery in every 4-5 years, however, the previous best ratio was in the year 2011 and it has failed to improve since then. The fundamental reason for the sluggish investment, once again are the economic shocks due to demonetisation and the GST, which seem to have increased the revival period by at least two to three years. The survey also found that one percentage point fall in investment rate is expected to dent growth by 0.4-0.7 percentage points. The most important key to producing the growth rate of 7-7.5% is therefore, mending investment and doing away with the bad debts, that hit a record high of Rs. 9.5 lakh crore at the end of June 2017[9].

The Economic Survey has given some hope for the comeback, however, the only statement supporting this prediction isn’t the programmes that are being implemented by the government to boost the economy, but the recovery from the past steps. The Survey has explicitly stated that one of the major drags of growth has been lack of private investment, and has also stated that bank recapitalisation and insolvency code can solve these issues, by providing credits and help companies to move-on from their non-performing assets respectively. These two policies, will definitely help to bring private investment back in the economy, but the speed and efficacy of implementation would be a greater determinant of the recovery.

[1] Economic Survey 2017-18 (Volume II), An Overview of India’s Economic Performance in 2017-18, Page 1, January 29th, 2018, Accessed on February 03, 2018 http://mofapp.nic.in:8080/economicsurvey/pdf/001-027_Chapter_01_Economic_Survey_2017-18.pdf

[2] Economic Survey 2017-18 (Volume I), A New, Exciting Bird’s-Eye View of the Indian Economy Through the GST (Chapter-2), Page 33, Table 1, January 29th, 2018, Accessed on February 03, 2018 http://mofapp.nic.in:8080/economicsurvey/pdf/032-042_Chapter_02_ENGLISH_Vol_01_2017-18.pdf

[3] Report by The Economic Times, GST collections dip, December 27th, 2017, accessed on February 05th, 2018, https://economictimes.indiatimes.com/news/economy/policy/gst-collections-dip-further-in-december-to-rs-80808-crore/articleshow/62254455.cms

[4] Economic Survey 2017-18 (Volume I), Ease of Doing Business’ Next Frontier: Timely Justice (Chapter 9), Page 138, Table 5, January 29th, 2018, Accessed on February 03, 2018 http://mofapp.nic.in:8080/economicsurvey/pdf/131-144_Chapter_09_ENGLISH_Vol%2001_2017-18.pdf

[5] Union Budget 2018-19, The Fiscal Policy Strategy Statement, Page 1, February 1st, 2018, Accessed on February 4th, 2018 http://www.indiabudget.gov.in/ub2018-19/frbm/frbm3.pdf

[6] Press Release by PIB Delhi, Economic Survey 2017-18, Page 1, January 29th, 2018, Accessed on February 4th, 2018 http://pib.nic.in/PressReleseDetail.aspx?PRID=1518086

[7] Press Release by PIB Delhi, Economic Survey 2016-17, January 31th, 2017, Accessed on February 4th, 2018 http://pib.nic.in/newsite/PrintRelease.aspx?relid=157810

[8] Economic Survey 2017-18 (Volume I), Investment and Savings Slowdowns and Recoveries, Page 43, January 29th, 2018, Accessed on February 4th, 2018 http://mofapp.nic.in:8080/economicsurvey/pdf/043-054_Chapter_03_ENGLISH_Vol_01_2017-18.pdf

[9] Devidutta Tripathy, Suvashree Choudhury, No respite for India banks as bad loans hit record $146 billion, October 11th, 2017, Accessed on February 5th, 2018 https://in.reuters.com/article/india-banks/exclusive-no-respite-for-indian-banks-as-bad-loans-hit-record-146-billion-idINKBN1CG0HE

Image Source: Press Trust of India

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Written By Parth Gupta

Economics Undergrad (Batch 2019) | Panjab University, Chandigarh

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