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State of economy : Economic survey in detail (Relevant for GS Prelims and Mains Paper III)

1. Economic growth at 7.1%
The Survey pegs economic growth in 2016-17 at 7.1%, but this is based mainly on information for months before the November 8 demonetisation of Rs. 500 and Rs. 1,000 notes.This is half a percentage point lower than the 7.6% growth last year, but the CEA warned that comparisons attributing the difference in growth numbers to demonetisation alone would be unwise.After a temporary slowdown in GDP growth, the Survey expects the economy to return to normal, once the scrapped currency is replaced by March. In the long run, tax revenues and GDP growth would be bolstered on account of greater tax compliance and a reduction in real estate prices.

2. Reward States’ good fiscal show’
The Economic Survey recommended the Centre to incentivise good fiscal work by States to keep the overall fiscal performance on track.

Redistributive transfer
Redistributive Resource Transfer or RRT to a state (from the Centre) is defined as gross devolution to the state adjusted for the respective state’s share in aggregate GDP.The top 10 recipients are: Sikkim, Arunachal Pradesh, Mizoram, Nagaland, Manipur, Meghalaya, Tripura, Jammu and Kashmir, Himachal Pradesh and Assam.

The Economic Survey pointed out that there is no evidence of a positive relationship between these transfers and various economic outcomes, including per capita consumption, GSDP growth, development of manufacturing, own tax revenue effort, and institutional quality. Instead, there is a suggestive evidence of a negative relationship. For example, larger RRT flows seem to negatively affect fiscal effort.

It also recommended using a part of the RRTs or redistribute the gains from resource use, as a Universal Basic Income directly to households in relevant states which receive large RRT flows and are more reliant on natural resource revenues.

3. Push to solve India’s twin balance sheet problem
The Economic Survey called for a need to set up a government-owned asset reconstruction company, PARA (Public Sector Asset Rehabilitation Agency). PARA (Public Sector Asset Rehabilitation Agency) in an attempt to resolve India’s twin balance sheet problem – over-leveraged companies and the rising bad loans in public sector banks. Considering India’s twin-balance sheet problem, the Survey said that the agency could take charge of the largest, most difficult cases, and make politically tough decisions to reduce debt. India’s NPA ratio at its current level of 9.1% of the gross loans is higher than any other major emerging market (with the exception of Russia), higher even than the peak levels seen in Korea during the East Asian financial crisis.

4. Modification of FRBM Act
This suggestion assumes significance in the backdrop of the N.K. Singh panel recently submitting its report on revising the FRBM Act to finance minister Arun  Jaitley. India’s experience has also highlighted the danger of relying on rapid growth rather than steady and gradual fiscal and primary balance adjustment to do the ‘heavy lifting’ on debt reduction.The government has set a target for fiscal deficit (the gap between expenditure and revenue for the financial year) of 3.5% of GDP for FY’17, a lower target than the 3.9% set for 2015-16 which was achieved. In value terms, the 3.5% is Rs. 5.33 lakh crore.

5. Time ripe for discussions on Universal Basic Income’
A Universal Basic Income (UBI) will be an efficient substitute for a plethora of existing welfare schemes and subsidies. 'The report justified the introduction of UBI citing several reasons such as
1. Promoting social justice, reducing poverty and an unconditional cash transfer that lets the beneficiary decide how she uses the money. 
2. It also said the move would bring in administrative efficiency as a direct cash transfer through a JAM (Jan Dhan-Aadhar-Mobile) platform would be more efficient compared to the “existing welfare schemes which are riddled with misallocation, leakages and exclusion of the poor.”
 
6. GDP growth 

The government has marginally revised upwards the GDP growth for 2015–16 to 7.9% from the earlier estimate of 7.6% after factoring in the latest data on agriculture and industrial production.“Real GDP or GDP at constant (2011–12) prices for 2015–16 and 2014–15 stands at Rs. 113.58 lakh crore and Rs. 105.23 lakh crore respectively, showing growth of 7.9% during 2015–16 and 7.2% during 2014–15 Last year, CSO had estimated GDP growth rate for 2015–16 and 2014–15 at 7.6% and 7.2%, respectively.



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