Beware downside risks

The Economic Survey, the blueprint for 2018 Budget, is out. It gives one a feeling that all is well. A series of major reforms undertaken over the past year will allow real GDP growth to reach 6.75 per cent this fiscal and will rise to 7 to 7.5 per cent in 2018-19, thereby re-instating India as the world‘s fastest growing major economy, it says. It said that the reform measures undertaken in 2017-18 can be strengthened further in 2018-19. 

While economists could be differing over their expectations based on numbers and the threat perception, the commoners only hope that the glowing numbers would get reflected in their lives too. Whatever it is going to be we should remember that the forecast is based on trends. There could be an upside because issues like GST are behind now and all the rating agencies are brimming with confidence that India would do well in the upcoming year and the year will be all about India's growth story. 

The Economic Survey sets the manufacturing growth at 8 per cent and says the private investment is poised to grow, thanks to a healthy disinvestment policy. However, the focus should be on employment, education and agriculture. The Centre should not lose sight of these three areas even for a while. 

It is not just about the crucial general elections of the next year or the eight Assembly elections due this year that the ruling dispensation would be facing. The Budget story is going to be both political and economical, too. The global agencies have endorsed the steps implemented by the government so far. While the government is trying to suggest that all is well, a question mark still hangs on – is there a connect between Narendra Modi and the government? Look at the agriculture ministry. Have we heard anything from the Agriculture Minister of this country on any issue in the past six months at least?

No doubt, Modi does all the talking, but who does the doing part of it? It is not as if there are no pitfalls ahead for the economy. The Survey highlights that against the 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 fall in capital flows. 

Oil prices are rising at an average of 12 per cent by year. This could lead to a demand contraction. The agenda for the next year consequently remains full: stabilising the GST –  GST is a continuing story because it is still not simpler to file returns – completing the TBS (Twin Balance Sheet) 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. But, growth is not to be taken for granted. Unless the bigger challenges are recognised and tackled, it would be a disaster story.