Economic Survey: The Six Most Important Suggestions

“I am the chief economic adviser, not the chief political decider,” chief economic advisor Arvind Subramaniam said in response to a question about whether the suggestions in the Economic Survey 2015-16 will find space in the budget.

Generally, the economic surveys have tonnes of good advice, which are never reflected in the budgets that follow the next day, even though the chief economic adviser is closely involved in the formulation of the budget.

But assuming Finance Minister Arun Jaitley is inclined to listen to his chief economic adviser, and is serious about putting the economy on a path of sustained growth, here’s what one could expect. If he is not inclined to listen, then perhaps these are things he should heed.

#1. Do something urgently on subsidies. No, this is not the usual heartless free market fundamentalist’s rant. The survey lists seven items – kerosene, electricity, LPG, railways, petrol, diesel, aviation turbine fuel and gold – on which the implicit subsidy to the rich amounts to RS 10 lakh crore. “. . . rectifying some egregious anomalies may be good not only from a fiscal and welfare perspective, but also from a political economy welfare perspective, lending credibility to other market-oriented reforms,” the Survey says.

#2. Work seriously on ending tax exemptions. This, the Survey says, often amounts to redistribution towards the richer private sector. The Survey also suggests that no profession should escape the tax net. This was a clear reference to agricultural income, which is not taxed at all. While the government is working on ending tax exemptions for the corporate sector, it is not moving on agricultural income. Perhaps the time has come to tackle this hot potato.

#3. Don’t raise exemption thresholds. The Survey junks the theory put out by Thomas Piketty that India under-taxes and under-spends but also suggests that more people be brought into the tax net. This, it suggests, can be done by not tinkering with the exemption thresholds. The threshold should remain where it is so that as incomes rise more and more people will come into the tax net.

#4. Spread the JAM (Jan Dhan Yojana, Aadhar and Mobile transactions) trilogy to new areas. The Survey suggests doing this based on two criteria – the extent of leakages and the extent of central government control. Subsidies with higher leakages have larger returns after introduction of JAM. And, it will be easier to roll out JAM in areas where the central government is the main provider of the subsidy. Apart from LPG (where JAM is already operational to some extent), the Survey suggests fertilisers could be the next sector where this could be rolled out.

#5. Focus on easier exits. This is not just about corporate exits from failing businesses. The Survey expands the paradigms of exits: allow easier entry to encourage competition; address legal lacuna through laws (which is being done with the new bankruptcy law); in the case of agriculture, exit from the current cereal-centric, regionally concentrated, input-intensive policies to pulses-oriented, regionally-broad based, more-for-less inputs system; bring in use of technology to achieve better targeting and exit the old system of providing subsidies, as in the case of fertilsers; privatise public sector enterprises.

#6. Undertake serious reform of the fertiliser sector. The Survey suggests a cap on the number of subsidised bag each farming household can purchase and insistence on biometric authentication at the point of sale (POS). This will take care of targeting and reduce leakages. “While many details will need to be worked out, the time is ripe for starting the DBT experiment in fertilisers,” the Survey says.

Surely, Jaitley can get the chief political decider, Prime Minister Narendra Modi, to agree to five suggestions from his chief economic adviser.