Economic Survey 2015-16: Fiscal consolidation important to maintain credibility; Will Jaitley follow through?

The Economic Survey 2015-16 started off by stating, "This year’s Economic Survey comes at a time of unusual volatility in the international economic environment." It termed India as being in a "sweet spot" arising from a combination of a strong political mandate and a favourable external environment. 

Parliament's session on Tuesday January 31, 2017 will begin with the President’s address to the joint sitting of the two Houses, Economic Survey will be tabled around 1:00 PM

It said, "Amidst this gloomy landscape, India stands out as a haven of stability and an outpost of opportunity. Its macro-economy is stable, founded on the government’s commitment to fiscal consolidation and low inflation." Since then, Government has demonetised 86% of the country's currency, the aftershocks of which, are still being felt. Various agencies and analysts have already downgraded India's growth estimates, including government's own statistics department. 

Moreoever, the fiscal consolidation route that Finance Minister Arun Jaitley had proposed seems to be on course to abandonment. The government, in Economic Survey 2015-16 had said, "Fiscal consolidation continues to be vital, and will need to maintain credibility and reduce debt, in an uncertain global environment, while sustaining growth."

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Moody's, in a note earlier this month, said that it expects the government to renew its commitment to increase capital spending and address the short-term disruptive impact of demonetisation in the Budget to be unveiled on February 1, 2017.

US-based Moody's Indian affiliate ICRA said that India will remain one of the fastest growing major economies globally in 2017, although GDP growth will moderate in the first half of the year, as the economy adjusts after demonetisation, PTI had reported. 

The Survey had further said, "India stands out as a haven of stability and an outpost of opportunity. Its macro-economy is stable, founded on the government’s commitment to fiscal consolidation and low inflation. Its economic growth is amongst the highest in the world, helped by a reorientation of government spending toward needed public infrastructure."

Since then, India's GDP growth estimates have fallen with FICCI on Monday stating that it expects the country to grow at 6.8% in the current fiscal as against 7.1% by Ministry of Programme & Statistical Implementation. 

International Monetary Fund (IMF), too, has cut India's growth expectation to 6.6%. 

It said the move had resulted in temporary negative consumption shock which induced by cash shortages and payment disruptions.

This means that India will lose its “fastest growing economy” title to China. 

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"The task now is to sustain them in an even more difficult global environment. This will require careful economic management. As regards monetary and liquidity policy, the benign outlook for inflation, widening output gaps, the uncertainty about the growth outlook and the over-indebtedness of the corporate sector all imply that there is room for easing," the Economic Survey 2015-16 read.