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Good jobs, farms, govt spending to remain drivers; banks, China, world growth are concerns

India has the highest growth in the world at 7.6 per cent boosted by government spending, says the Economic Survey 2015-16. It has come out as a blatant admission that Manmohanomics could not make any difference to private sector dependence on the government.
Farms remain a dominant force for growth but it calls for dynamic and holistic policy change. The farm varsities and private sector have failed and India could not take recourse to low cost farm technologies.
Along with this India has to create millions of good jobs – safe and well paid and create labour regulations including for women. This would add to 1.4 percent a year to the GDP.
It is concerned about the lack of private investment and enhanced needs for acceleration of domestic economy – a challenging task for the government saddled with legacies of the past.
The Railway Budget only tries to strengthen those views. Railway Minister Suresh Prabhu has not raised fares or freight and announced several moves to make the railways a picture of efficiency and attraction for the users.
But he has also mentioned numerous challenges. The biggest is shortfall in earnings by Rs 15743 crore. Against targeted revenue of Rs 1.83 lakh crore, in 2015-16, it could earn Rs 1.67 lakh crore. The reason is the fall in passenger and freight earnings indicating traffic is moving to air, and road. The coming year too is likely to remain critical.
Goods movement on railways is moving away to faster highways and cheaper transportation owing to dynamic freight structure. Passengers, both higher and lower classes, prefer air travel and comfortable buses over premium trains, charging almost the air fare in some cases, and cumbersome reservation and expensive cancellation system. Railways now carry 36 percent of goods traffic against 62 percent in 1980.
The survey claims that inflation is under control and taxes are predictable. It also claims that the implementation of Seventh Central Pay Commission (CPC) recommendations and one-rank-one-pay for defence personnel would not add to inflation as consumer inflation is slated to come down from the present 5.5 percent to around 4.4 percent. The experience of the past has been different.
The twin staff benefit is certain to hit government revenues. Railways alone would have to spend an additional Rs 1.23 lakh crore for implementing CPC and additional Rs 45,500 crore on pension liability in 2016-17. It will withdraw heavy sums from railway Debt Service Fund (DSF).
The alternative suggested through monetization of railways land, advertising and similar other modes have been considered repeatedly since 1980s without much success. It has set a target of Rs 1.21 lakh crore for plan budget though it has not been able to meet its target in the current fiscal. The new mission mode emphasizes on higher freight load, better book keeping, save Rs 1500 crore in its equipment expense mode and higher speed for all trains in the coming years through investments from LIC, DSF and foreign collaboration.
The Survey is not oblivious of the problems that afflict the railways and the nation. It mentions of external slowdown affecting exports, envisages shortfall in foreign investments as foreign companies are being pressurized by their respective government to go slow. The domestic consumption is to be the likely driver. It says the additional money to the employees through higher CPC wages would boost consumption. It has cautioned that there could not be too much dependence on growth through consumption.
Investments and quality expenditures are required. It finds quality improvement in government expenditure on aggregate capital expenditure, that builds assets and assist future growth, by 0.6 percent of the GDP. It notes that more resources have been devoted to the agricultural sector, hitherto neglected, at a time of farm distress in 2015-16.
A healthy aspect of the economy, achieved through 42 percent of central finances to the states, also helped in higher – 54 percent central and 46 percent state – capital expenditures.
Real expenditure on education, health, agriculture and rural development, recorded growth of 4.7 percent, 9 percent and 8.1 percent.
The growth is closely linked to world growth as the country is more globalised now, the survey notes. It says that one percentage point decrease in the world growth rate to cause 0.42 percent deceleration in Indian growth rates. If world economy remains weak, “India’s growth will face considerable headwinds”. If the world continues to grow at 3 percent, India’s medium term growth trajectory could well remain closer to 7-7.5 percent, as the present trend is, rather than rise to 8-10 percent.
Turmoil in the global economy could worsen the outlook for exports and tighter financial conditions. If oil prices rise it would again hit consumption and industrial growth.
The only hope the survey says, “is a good monsoon”. This would raise rural consumption, dampen price pressures and cause monetary easing. It foresees capital reflow to the US as it raises interest rates and again tightening of monetary conditions.
Added to this is twin balance sheet (TBS) challenge – public sector banks hit by high NPAs and falling profits of some large corporate houses. The TBS is stated as the major impediment to private investment, and “thereby to a full-fledged economic recovery”. It now sees a risk even to the RBI because value of foreign exchange reserves in terms of rupee fluctuations. It wonders whether it would hit the forex buffer now touching $ 351.5 billion.
Chinese slowdown and currency weakening will hit India’s competitiveness. Chinese excess capacity in steel and aluminum will lead to surge in imports to India hitting Indian producers.
The survey says India should eliminate the policies that provide negative protection to Indian manufacturing and favour foreign manufacturing. It also has to end policy voalitility in agriculture like ten changes in cotton policy mostly relating to exports and often reversing previous actions. The flip-flop hits farmers both ways when prices go up in world markets.
It finds India in a “chakravyuha” of protecting its interests while refusing to give the benefits WTO competitors. It stresses on trade liberalisation for dynamism and growth for agriculture and manufacturing. The twin tracks if addressed properly would protect those engaged in farm-related jobs as also would create new jobs in industry.
The survey wants an end to domestic policy of disruptions, greater trade opening and realistic farm policy to be the fastest global driver.

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