27 FEBRUARY 2016

Ø  Shunning last year’s “over-optimism”, Economic Survey 2015-16 projects that the real GDP growth for the current financial year and for 2016-17 will be in the range of 7-7.75 per cent. The Central Statistics Office estimates that growth this year will be 7.6 per cent, lower than the 8.1-8.5 per cent projected in the last Survey. There is anxiety that the economy is not realising its full growth potential, which in the long run is still around 8-10 per cent, says the survey tabled in Parliament on Friday. The ‘sweet spot’ created by a strong political mandate is still “beckoningly there” for now but “not indefinitely”, lead author and Chief Economic Adviser Arvind Subramanian writes in the opening paragraph. Improved investments in education and health, where India fares the worst among BRICS nations, the survey says, and adequate attention to agriculture could realise the potential. “In the wake of four seasons of weak rainfall and consequent adversity, agriculture has served a wake-up call, demanding attention from policy makers.” The medium-term potential can be realised over the next two to five years, if the “retrievable setbacks” and the “unfinished agenda” are undertaken, Dr. Subramanian told reporters. In the unfinished agenda, he listed the Goods and Services Tax, strategic disinvestment, de-stressing of the balance sheet of both banks and private companies, and the rationalisation of subsidies. Stretched corporate and bank balance sheets are affecting prospects for reviving private investments, and so the underlying stressed assets must be sold or rehabilitated, he said. The survey makes a case for unpopular reforms, such as bringing agricultural incomes in the tax net, rationalisation of fertiliser subsidies estimated at Rs. 75,000 crore (excluding arrears) and the withdrawal of tax benefits which, he argued, benefit mainly the rich. Dr. Subramanian also recommends restricting the cooking gas subsidy to 10 cylinders from 12 at present, raising the levels of property tax and desisting from raising the income tax threshold.

Ø  India’s rich feed off subsidies worth over Rs. 1 lakh crore a year that are meant for the poor, according to the Economic Survey. And this figure only considers the subsidies on six commodities, two public utilities — the Railways and electricity — and one small savings scheme, the Public Provident Fund. There are a fair amount of government interventions that help the relatively better-off in society. In many cases, this takes the form of explicit subsidisation, which is surprisingly substantial in magnitude. The Survey classified the population on the basis of consumption data collected by National Sample Surveys. “Poor refer to the bottom 30 per cent of the population and the rich the top 70 per cent,” it said in a footnote. This categorises a sizeable portion of the non-poor as ‘rich’. These numbers are striking and have one policy implication: any tax incentives that are given, for example, for savings, benefit not the middle class, not the upper middle class but the super-rich who represent the top 1-2 per cent. Chief Economic Adviser Arvind Subramanian, the Survey’s lead author, argued that most commodities primarily consumed by the rich have a very low tax rate, in effect subsidising them at the cost of the poor. For example, the rich consume 98 per cent of the gold in the country, and yet gold is taxed at only 1-1.6 per cent (the Centre and the States combined). The rich avail of an 88 per cent subsidy on kerosene, amounting to Rs. 5,501 crore and 86 per cent subsidy on LPG, amounting to Rs. 40,151 crore. To arrive at the quantum of subsidies availed of by the rich, the Economic Survey assumed the average tax on normal commodities at 19 per cent, the Revenue Neutral Rate for the GST as recommended by the Subramanian panel, and a 50 per cent tax on energy-related commodities that serves as an “appropriate carbon tax.” The effective subsidy availed by the rich, as calculated by the Survey, is the difference between this tax rate (19 per cent or 30 per cent) and the actual subsidy, measured as a negative number, or the (positive) tax rate on that commodity or service. Some commodities are subsidised more for the poor than the rich, such as railway tickets (since there are different categories of tickets), but even here, the rich avail of a subsidy of 34 per cent, according to the Survey. Similarly, the tax structure has resulted in aviation fuel being cheaper per litre than petrol and diesel. “Aviation fuel is taxed at about 20 per cent (average of tax rates for all states), while diesel and petrol are taxed at about 55 per cent and 61 per cent (as in January 2016). The real consumers of ATF are those who travel by air, who essentially are the well-off,” the Survey said.

Ø  The Supreme Court on Friday admitted a Chennai lawyer’s petition for setting up a National Court of Appeal with regional benches to act as the final courts of justice in criminal and civil cases. In doing so, the court has at one stroke questioned the past views of its own Chief Justices of India about bifurcation of judicial powers and a government order in 2014 that such a court of appeal is constitutionally imper missible. The proposed court is meant to act as final arbiter of appeals against decisions of the High Courts and tribunals in civil, criminal, labour and revenue cases.