Monday, January 29, 2018

Key highlights from Economic Survey 2017/18 of Indian economy

1. Overview of the economy in 2017-18: 

  • GST launched
  • Twin balance sheet problem addressed by sending the major stressed companies for resolution under the new Indian Bankruptcy Code and implementing a major recapitalization package to strengthen the public sector banks.
  • Economy began to accelerate in the second half of the year. This should allow real GDP growth to reach 6.75 percent for the year as a whole, rising to 7-7.5 percent in 2018-19.
  • Fiscal deficits, current account and inflation were all higher than expected.
  • Rationalize government resources by redirecting them away from subsidies towards public provision of essential private goods and services at low prices, especially to the poor
  • Fiscal stasis: Tax to GDP ratio has remained at similar level for decades despite average economic growth of 6.5%
  • Current account vulnerability: Revive manufacturing and export more  
  • Downside risks come from high international oil prices, sharp correction of elevated stock prices
  • Policy agenda for next year: stabilizing GST implementation (remove uncertainty for exporters, facilitate easier compliance, expand tax base), completing the twin balance sheet problem resolution (4Rs: recognition, resolution, recapitalization and reforms), complimentary reforms to shrink unviable banks and allow greater private sector participation (privatize Air India)
  • Policy agenda for medium-term: creating more employment for youth, more focus on education to create an educated and healthy labor force, and raising farm productivity while strengthening agricultural resilience.

2. Large increase in registered indirect and direct taxpayers. A 50 percent increase in unique indirect taxpayers under the GST compared with the pre-GST system. Similarly, there has been an addition (over and above trend growth) of about 1.8 million in individual income tax filers since November 2016

3. States’ prosperity is correlated with their international and inter-state trade States that export more internationally, and trade more with other states, tend to be richer. But the correlation is stronger between prosperity and international trade.

4. To re-ignite growth, raising investment is more important than raising saving. Cross-country experience shows that growth slowdowns are preceded by investment slowdowns but not necessarily by savings slowdowns may not.

5. Own direct tax collections by Indian states and local governments are significantly lower than those of their counterparts in other federal countries. This share is low relative to the direct taxation powers they actually have.

6. Indian society exhibits strong son “Meta” Preference. Parents continue to have children until they get the desired number of sons. This kind of fertility-stopping rule leads to skewed sex ratios but in different directions: skewed in favor of males if it is the last child, but in favor of females if it is not the last

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