The Economic Survey is the annual report card of the country, It is presented in the Parliament every year just before the budget.
The Economic Survey is prepared by the Chief Economic Advisor and presented by the Finance Minister. (Currently, the CEA is Arvind Subramanian and FM is Arun Jaitley.)
The Economic Survey has two volumes. We will start with the summary of the first volume. The Volume-I has further been divided into 9 chapters. We will post one article on each of them and then move on to the Volume-II.
This year’s Economic Survey begins with the ten new facts of the Indian economy:
1. There has been a large increase in the number of registered taxpayers
- There has been a 50 percent increase in the number of unique indirect taxpayers due to the implementation of GST
- There has also been an addition (over and above the trend growth) of about 1.8 million in
individual income tax filers since November 2016. (Nov 2016 was the demonetisation month)
2. Formal non-agricultural payroll is much greater than believed
In other words, formal employment in the non-agricultural sector is greater than estimates
- If formality is defined in terms of social security (EPFO/ESIC) provision; 31 % of total non-agricultural employment.
- If formality is defined in terms of being in the GST net: 53 %
3. States’ prosperity is positively correlated with both international and inter-state trade
- States that export more internationally, and trade more with other states, tend to be more prosperous or rich.
- In other words, states with greater international trade and inter-state trade tend to be richer.
- But the correlation is stronger between prosperity and international trade.
4. India’s firm export structure is substantially more egalitarian (equitably distributed) than in other large countries
- Firm export structure in India is relatively equal than in other countries.
- Top 1 percent of Indian firms (that is rich MNCs) account for only 38 percent of total exports
- In other countries, they account for a substantially greater share (72%, 68%, 67%, and 55% of exports in Brazil, Germany, Mexico, and the USA respectively).
5. The clothing incentive package boosted exports of readymade garments
- The relief from embedded state taxes (ROSL) announced in 2016 boosted exports of ready-made garments (but not others) by about 16 percent.
6. Indian society exhibits strong preference for male child
- It leads parents to continue to have children until they get the desired number of sons.
- This leads to skewed sex ratios.
- The sex ratio is skewed in favour of males if it is the last child, but in favour of females if it is not the last.
7. Substantial litigation can be avoided in the tax arena through government action
- The tax departments success rate in tax litigation is low (below 30 %)
- But, its petition rate is high (88 %)
- Also, only 0.2 percent of cases account for 56 percent of the value at stake
- whereas about 66 percent of pending cases (each less than Rs. 10 lakhs) accounts for only 1.8 percent
of the value at stake.
- Hence, the tax department has to choose their battles wisely and cut down on petition rate.
- The rules and policies should be made clearer.
8. Increasing investment is more important than saving to re-ignite economic growth
- Cross-country experience shows that growth slowdowns are preceded by investment slowdowns but not
necessarily by savings slowdowns.
- Hence, investment is more important to increase growth rate.
9. Own direct tax collections by Indian states and local governments are significantly lower than those of their counterparts in other federal countries
- This share is low relative to the direct taxation powers they actually have.
- The ratio of direct tax collections to revenues of the states in India is below 10 %.
10. The footprint of climate change is evident and extreme weather adversely impacts agricultural yields
- The impact of weather is felt only with extreme temperature increases and rainfall deficiencies.
- This impact is twice as large in unirrigated areas as in irrigated ones.