Feb 27, 2013|
Economic Survey: Stress on better jobs, investments
Economic Survey for 2012-13 did not read very differently from that of preceding few years. But the difference lay in assessment of economic variable with clear cut targets in mind. Chief Economic Advisor Raghuram Rajan's maiden Economic Survey presented today enlisted three key objectives. These were reviving demographic dividend, shifting from consumption to investment-led growth and countering macroeconomic challenges like inflation and deficits.
Sizing up demographic opportunities
Outlining the gap in demographic profile of India with its emerging peers the Survey stressed on the need for job creation. A larger workforce in India cannot necessarily deliver better per capita income and higher GDP growth. Larger workforce translates into more workers only if there are productive jobs for it. Comparing India with where China was 10 years back may offer a good perspective. But the Survey suggests that blindly replicating their trajectory may be unwise. We completely agree with this. The risks and challenges for India are very different today than they were for China a decade back. And hence our approach to job creation and productivity improvement also needs to be different. Focus on education, skill development and industrialization could offer some meaningful solutions.
Shift from Consumption to Investments
Taking a departure from India's consumption focused growth approach, the Economic Survey stressed on investments instead. The fact that a falling trend in investments was responsible for India's growth slowdown is entirely true. There were two reasons for this. First of all the number of stalled projects saw a substantial rise since early 2009; in both value and volume terms. What is more, as of December 2012, six sectors accounted for about 80% of all stalled projects: electricity, roads, telecommunication services, steel, real estate and mining. Secondly, there was not much traction in new project investments. This was a fallout of the first problem notably that rise in the number of stalled projects meant that the ability to begin new projects was reduced. Various factors that have contributed to these problems include difficulties in land acquisition, coal linkages, and mining bans as well as policy issues relating to spectrum allocation. Firm interest rates also reduced the propensity of the corporate sector to make new investments.
Given that the growth rate of the economy since FY04 has been strongly correlated with investment, it goes without saying that the Survey believes that a pickup in investments is very important if growth has to improve. The Survey states that policies to remove investment bottlenecks as well as structural reforms to encourage productive investment have to be put in place. Financing of the same will also be essential. Further, if inflation reduces further, a moderate monetary policy would also help in spurring investments.
Short and medium term prospects
The Economic Survey has projected that the Indian economy will grow in the range of 6.1-6.7% in FY14. This is based on the expectation that the three major sectors of the economy will overcome most of the challenges faced in FY13. Disappointments in terms of monsoon, moderation in inflation and recovery (albeit mild) in global growth could be the dampeners.
We believe that adequate policy focus on the three key objectives of this Economic Survey coupled with timely execution could have a multiplier effect on India's long term growth rate.
||Tanushree Banerjee (Research Analyst), is the editor of ValuePro, The India Letter, and Stock Select, Equitymaster's oldest recommendation service. She is also the editor of Equitymaster's most popular newsletter read by over 200,000 subscribers, The 5 Minute WrapUp. Tanushree started her career at Equitymaster covering the banking and financial sector stocks along with scrutinizing the RBI policies. And over the last decade, developed our research processes that have helped us pick out various multibaggers, across all sectors. A firm believer of "safety first" when it comes to investing, Tanushree closely follows the investing philosophies of Warren Buffett, Jeremy Grantham and Joel Greenblatt.
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