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Important aspect of ECONOMIC SURVEY 2015-16

Here, in a Q&A form, is the essence of Economic Survey 2015-16, which sets the context for Union Budget 2016-17

How is India doing?
Pretty good for an economy where exports have declined and private investment remains weak
How much will India grow by in 2015-16?
7-7.75%
Next year, 2016-17?
7-7.75%
Is that the fastest India can grow?
No. India’s long-term potential is 8-10% real rate of GDP growth. But the state of the global economy will weigh on the country’s ability to achieve it in the medium term when 7-7.5% will be the norm.
What has India done to boost growth?
It has tackled corruption; reformed its foreign direct investment policy; made it easier to do business in the country; increased public investment; launched a powerful crop insurance scheme; controlled inflation; worked on the cause of financial inclusion; restructured the power sector; and worked on removing some subsidies.
Why then are people so negative?
Maybe because they don’t realise that the sum is greater than the parts. And maybe because there have been disappointments.
Such as?
The inability to pass the Goods and Services Tax legislation. Not divesting as much as expected. Not moving fast enough on the next stage of removing subsidies. And the continuing stress on bank and corporate balance sheets
What can India do to get to the next stage of growth?
Become pro-entrepreneurship by becoming pro-competition. Invest in health and education. And not ignore agriculture which is still very important
In conclusion?
There are reasons for hope. Competitive federalism has made states pro-business and reformist. There is a growing realisation that good economics is good politics. There is always hope that GST will be passed. The sweet spot is still there.
Economic Survey says new mission on climate change in the works

Apart from the National Action Plan on Climate Change, a new mission on climate change and health is currently under formulation, says survey
 Lauding 2015-16 as a landmark year for climate change initiatives in India, the Economic Survey released on Friday said a new mission on climate change and health is currently under formulation.

“Apart from the National Action Plan on Climate Change (NAPCC), a new mission on climate change and health is currently under formulation and a National Expert Group on Climate Change and Health has been constituted,” said the survey while highlighting that India has been taking ambitious domestic actions against climate change.
It said the National Mission on Coastal Areas (NMCA) for integrated coastal resource management and the proposed waste-to-energy mission are other major components of India’s domestic actions to tackle climate change.
The 2015-16 survey, released by finance minister Arun Jaitley, said that India also played an important role in the 21st Conference of Parties (COP 21) under the United Nations Framework Convention on Climate Change (UNFCCC) and in the adoption of the Paris Agreement—a new global climate deal—in December 2015.
“The Paris Agreement sets a road map for all nations in the world to take actions against climate change in the post-2020 period. Also, Prime Minister Narendra Modi played a leading role at COP 21 in the launch of the International Solar Alliance (ISA), and also volunteered to host its secretariat,” noted the survey while adding that 2015 has been a landmark year for India in terms of climate change initiatives both nationally and internationally.
It also highlighted that (as of 4 January 2016) with 1,593 out of 7,685 projects registered under the Clean Development Mechanism (CDM) of the UNFCCC, India had the second highest number of projects registered under the mechanism, showing its commitment to fighting climate change.
CDM allows emission-reduction projects in developing countries to earn certified emission reduction (CER) credits, each equivalent to one tonne of CO2 (carbon di-oxide), which can then be traded or sold, and used by industrialized countries to a meet a part of their emission-reduction targets under the Kyoto Protocol.
Talking about other green measures taken by the government, the survey noted that India is one of the few countries around the world to have a carbon tax in the form of a cess on coal.
Economic Survey calls for pumping investment to better India’s human capital

The Economic survey points to the need to focus on the quality of education in both ‘public and private sectors’ and to leverage private investment in social sectors
 Admitting that India’s education quality is worsening, the Economic Survey on Friday called for “more investment in human capital” in order to arrest the trend and improve healthcare delivery.

It also drew a link between human capital investment and improving productivity.
“On the education front, the declining educational outcomes reflected in lower reading levels in both public and private sector schools are areas of concern,” the Economic survey said.
The survey points to the need to focus on the quality of education in both “public and private sectors” and to leverage private investment in social sectors.
Presented in Parliament by finance minister Arun Jaitley, the survey said that the “social infrastructure scenario in the country reflects gaps in access to education, health and housing amenities”.
It said “inclusive growth in India requires bridging gaps in educational outcomes and improved health attainments across the population”.
India spends around 4% of its gross domestic product on education—against a long standing target of 6%. India’s education sector with over 45,000 colleges and universities is one of the biggest sectors in the world but faces many challenges on quality. It caters to over 300 million students who are key to helping the country reap its human capital advantage.
In order to reap the so-called “demographic dividend”, the survey called for “increasing investment in human capital” as it is a “key requirement to improve productivity of the population”.
The Economic Survey also said that the total expenditure on social services, including education, health, social security, nutrition, and the welfare of underprivileged during 2014-15 (revised estimate), was 7% of the gross domestic product (GDP), while it was 6.5% the year ago.
The survey said the immunization coverage of children, health of pregnant women, declining role of public health delivery systems and the lack of adequate skilled personnel are the biggest challenges in the health sector.
Health and access to sanitation are closely related issues which can improve productivity and the living environment of the population to a great extent, the survey said, indicating a huge disparity in social indicators across states.
FTAs have led to more imports than exports: Economic Survey

The 42 free trade agreements signed by India so far have led to more imports than exports as the country has had to go for larger tariff reductions than its FTA partners
 The 42 free trade agreements (FTAs) signed by India so far have led to more imports than exports as the country has had to go for larger tariff reductions than its FTA partners because of relatively high tariffs, the Economic Survey 2015-16 said.

The survey said that in the current context of slowing demand and excess capacity, with threats of circumvention of trade rules, progress on FTAs, if pursued, must be combined with strengthening of India’s ability to respond with measures consistent with the World Trade Organization, such as anti-dumping and conventional duties and safeguard measures.
“Analytical and other preparatory work must begin in earnest to prepare India for a mega-regional world,” it said.
The survey said in the case of the Asean (Association of South East Asian Nations) FTA, India has benefitted on both sides of trade flows, with a statistically significant 33% increase in exports and 79% increase in imports.
“The trade increases have been much greater with Asean than other FTAs and they have been greater in certain industries such as metals on the import side. On the export side, FTAs have led to increased dynamism in apparel, especially in Asean markets,” it said.
The survey said the overall effect of an FTA on trade is positive and statistically significant. “The cumulative effect between the year of the FTA and 2013 on trade with ASEAN, Japan, and Korea is approximately equal to 50%. India’s increased trade with FTA countries is not due to diversion of imports from more efficient non-FTA countries,” it said.
On the import side, a 10% reduction in FTA tariffs for metals and machinery increased imports by 1.4% and 2.1%, respectively, compared to other products from FTAs or all products from non-FTA countries, the survey said.

Reforms in Tax Rates

Reforms in Tax Rates
The details of the tax rates of the major countries of Asia have been taken from the KPMG Report on Global Rates, 2015 and are mentioned below:

Country Corporate Individual Income
Afghanistan 20 —–
Bangladesh 27.5 30
China 25 45
India 34.61 33.91
Japan 33.06 50.84
Kazakhstan 20 10
Malaysia 25 25
Pakistan 33
Singapore 17 20
Srilanka 28 24

In view of above, the Indian tax rates for direct taxes are higher than the average tax rate among Asian countries.
As far as Indirect Taxes are concerned, tax to GDP ratio during Financial Year 2014-15 was 4.4%.
Tax rates are higher because of exemptions and deductions provided for in the Income Tax Act, 1961. Taking into account the revenue foregone on account of these exemptions and deductions, the effective rate of corporate tax works out to be around 23%.
Proposal to bring reforms in tax rates to reduce the burden of tax payers is under consideration of the Government. In the Budget Speech 2015, it was stated that the Corporate Tax rate would be reduced from 30% to 25% over the next four years along with phasing out of exemptions and deductions.

Food Security, in the current Agriculture Scenario

In order to provide Food Security, in the current Agriculture Scenario, India has to Focus on Supplies which are timely and Uninterrupted and Affordable for the Poor
57 % of Households had Calorie intake below 2160 KCal/Consumer unit/day
Average Protein intake Per Capita per day Rises Steadily
India Has the Second Highest Number of Undernourished People which Warrants Immediate Attention
                        The Economic Survey 2015-16 presented here today in the Parliament by the Union Finance Minister Shri Arun Jaitley emphasizes that the main aim of food management policy is to provide food security to the population.  Providing food security entails making food available at affordable prices at all times, without interruptions. In order to provide food security, in the current agriculture scenario, India has to focus on supplies which are timely and uninterrupted and affordable for the poor.  Though India’s GDP growth has been impressive and the agricultural production has also increased over the past few decades, hunger and starvation still persist among the poorer section of the population. There has been moderation of inflation including food inflation during the last two years, but more needs to be achieved by freeing up markets, augmenting supply of food and leveraging the use of IT.
According to the data of the 66th round of the National Sample Survey (2009-10), the average dietary energy intake per person per day was 2147 Kcal for rural India and 2123 Kcal for urban India.  As per the Report of Nutritional Intake in India, 2011-12 (NSSO, 68th round), among the bottom 5 per cent of rural population ranked by Monthly Per Capita Expenditure (MPCE), 57 per cent of households had calorie intake below 2160 Kcal/consumer unit/day. The average protein intake per capita per day rises steadily with MPCE level  in  rural India from 43 gm for the bottom  5 per cent of population ranked by MPCE to 91 gm for the top 5 per cent, and in urban India from 44 gm for the bottom 5 per cent to about 87 gm for the top 5 per cent.
Economic Survey 2015-16 states that India has the second highest number of undernourished people at 194.6 million person (FAO, State of Food Insecurity in the World, 2015) which warrants immediate attention. Moreover, with 27 per cent of the population below the poverty line, the rise in prices of food impacts the poor adversely, with a greater proportion of their household incomes being spent on food. Therefore, along with provision of food subsidy, stability in agricultural commodity prices is essential for making poorer sections food secure.
There is a strong correlation between stability in agricultural production and food security. Volatility in agricultural production impacts food supplies and can result in spikes in food prices, which adversely affect the lowest income of the population.
With a large number of people who remain undernourished and the issues of volatility in agricultural prices, Economic Survey 2015-16 states that India has one of the largest scheme of food schemes in the World to ensure food security. There is entitlement feeding programs like the Integrated Child Development Scheme (ICDS) (All Children under six, pregnant and lactating mothers) and MDMS (Mid  Day Meal Schemes), food subsidy programmes like the Targeted  Public Distribution  System, Annapurna ( 10 Kgs of free food grain for destitute poor) and the   Employment  Programmes like  Mahatama Gandhi National Rural Employment  Guarantee Scheme (100 days of employment at minimum wages) to ensure food security.

India can gain over $500 bn yearly joining TPP: Economic Survey

BY JOINING AN EXPANDED TRANS-PACIFIC PARTNERSHIP (TPP) OR PARTICIPATING IN A COMPREHENSIVE FREE TRADE AREA OF THE ASIA PACIFIC (FTAAP) AND THE COUNTRY’S NATIONAL INCOME WOULD EXPAND BY 4%, OR $200 BILLION

INDIA COULD EXPERIENCE EXPORT GAINS OF MORE THAN $500 BILLION PER YEAR, OR 60% INCREASE, FROM JOINING AN EXPANDED TRANS-PACIFIC PARTNERSHIP (TPP) OR PARTICIPATING IN A COMPREHENSIVE FREE AREA OF THE ASIA PACIFIC (FTAAP) AND THE COUNTRY’S NATIONALWOULD EXPAND BY 4%, OR $200 BILLION, SAID THE 2015-16.
THE SURVEY, PRESENTED BY FINANCE MINISTERIN PARLIAMENT ON FRIDAY, CITED EXPERTS TO SAY THAT INDIA IS MOST COMPETITIVE IN SERVICES TRADE AND REDUCTION OF TRADE BARRIERS IN SERVICES AMONG MEMBERS WILL RESULT IN GROWTH IN INDIA’S SERVICES EXPORTS.
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“THE POSSIBLE RISKS OF NOT JOINING THE TPP ARE DIFFICULT TO QUANTIFY, BUT SOME OF THE RESEARCH HAS HIGHLIGHTED THE POSSIBILITY OF TRADE DIVERSION AND RAISED CONCERNS ABOUT EROSION OF INDIA’S SHARE IN EXPORTS TO THE AND EUROPE,” IT SAID.
THE TPP IS A US-LED TRADE AGREEMENT INVOLVING TWELVE PACIFIC RIM COUNTRIES AND CONCERNING A VARIETY OF MATTERS OF TRADE AND ECONOMIC POLICY, ON WHICH CONSENSUS WAS REACHED IN OCTOBER LAST YEAR AFTER SEVEN YEARS OF NEGOTIATIONS.
“THE TPP IS EXPECTED TO MAKE AROUND 11,000 TARIFF LINES DUTY FREE FOR ITS MEMBERS, WHICH MAY RESULT IN LOSS OF COMPETITIVENESS OF INDIAN EXPORTS IN THESE MARKETS,” IT ADDED.
NOTING TPP ECONOMIES ON AVERAGE ARE MORE OPEN THAN THE INDIAN ECONOMY, THE SURVEY SAID THE SERVICE TRADE RESTRICTION INDEX OF THE WORLD BANK INDICATES THAT THE TPP ECONOMIES ARE LESS STRINGENT ABOUT ENTRY OF SERVICES THAN INDIA.
LAST MONTH, COMMERCE MINISTER NIRMALA SITHARAMAN SOUGHT TO REASSURE INDIAN INDUSTRY THAT THERE WOULD BE NO ADVERSE IMPACT OF ENTERING INTO THE TPP AGREEMENT.
“THERE IS NOTHING TO WORRY ABOUT THE ADVERSE IMPACT OF TPP ON INDIA. WE HAVE TAKEN NECESSARY STEPS TO BOOST INDIA’S TRADE AND INVESTMENT IN THE WAKE OF EMERGING NEW TRADE ARCHITECTURE,” SHE SAID IN HER ADDRESS AT THE CONFEDERATION OF INDIAN INDUSTRY’S ANNUAL PARTNERSHIP SUMMIT HERE.
SITHARAMAN ALSO SAID THE REAL IMPLEMENTATION OF TPP HAS A LONG WAY TO GO AS TILL DATE, NOT A SINGLE TPP MEMBER HAS GOT IT PASSED THROUGH THEIR PARLIAMENT.

Rs 1 lakh crore worth of subsidies go to the ‘well-off’

The 2015-16, presented in the on Thursday by Finance Minister Arun Jaitley, said that there was uneven distribution of subsidies worth Rs 1 lakh crore subsidies going to the better-off and those who did not deserve them.
The survey, which was prepared by Chief Economic Advisor (CEA) and his team of economists in the Finance Ministry, also said that the government could further expand the use of direct transfer of benefits through Jan-Dhan Yojana, Aadhaar and mobiles (JAM), with fertilizer subsidies and within-government transfers as two most promising areas for introduction of the JAM.
The survey said that the relatively well-off sections of society were getting the undeserved subsidies on account of commodities and services like gold, cooking gas, kerosene, electricity, railway fares, aviation and turbine fuel (ATF) plus the small savings scheme.

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“The total amount given as subsidy is no less than Rs 91,350 crore not to forget that this is an underestimate of the actual subsidy to the better-off because of the underestimation of the consumption by the rich in the NSS,” it said.
“If we add the subsidies inherent in just the schemes, the total subsidy to the well-off amounts to above Rs 1 lakh crore. This represents substantial leakage from the Government’s kitty, and an opportunity foregone to help the truly deserving,” the survey added
The survey said that addressing the interventions and rectifying these anomalies will be beneficial from financial year and political economy welfare perspective, and will credibility to other market-oriented reforms.
The last economic survey had laid down the genesis of the trinity to reduce subsidies and the latest survey gave pointers on how to expand its scope further. The concept was widely used in reducing subsidy leakages in and foodgrain.
“While deciding where next to spread JAM, policymakers should consider the challenges of beneficiary identification, distributor opposition and beneficiary financial inclusion. Spreading JAM to other areas will reduce leakages and provide more fiscal space to the government,” it said.
It said that all sections of the administrated economy, from poor households to state and local governments and their employees receive funds from the same Sarkari financial pipe that delivers subsidies – and which JAM can improve by reducing delays, leakages, and administrative burden.
“The policy areas that appear most conducive to JAM are those where the central government has significant control and where leakages — and hence fiscal savings due to JAM — are high. This combination is met for fertiliser and within-government fund transfers,” it said.
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