KPMG Statement on Economic Survey 2014-15 from Jaijit Bhattacharya, Partner, Infrastructure & Government services, KPMG in India

It is welcome to see that the Economic survey is targeting elimination of revenue deficit and laying out a fiscal discipline wherein borrowings will be done for only capital investments.  It is also heartening to note that the economic survey believes that the worst for the economy is clearly over and that the economy is on an upswing. The survey notes current account deficit to fall below 1% in the coming year and that the fiscal deficit target of 4.1% is achievable. These are very welcome developments. The goal of 8% growth in the coming year appears audacious but achievable, especially with the new statistical basis for measuring GDP.

However, muted export growth is an area of concern and unless India becomes more competitive, it would be difficult to grow exports in a world that is slowing down overall. Railways will have a key role to play in improving the competitiveness of the economy and hence rapid modernization of the Indian railways would be key.

However, the role of ecommerce and modern retail in improving the competitiveness of the economy was not clear from the survey. We believe that ecommerce and modern retail will improve the competitiveness from a retail side, although it would have limited impact from the factors of production perspective such as coal and energy.

Even though IT and ITES is slowing down, it continues to be one of the largest employers in India. India needs to grow in other industries which could be job generators.

The survey recommends growing the forex reserve of India to USD 1 trillion over a period of time. It would be more prudent to put the target for forex reserve in terms of months of forex exposure that India would have, including imports and repayments.

The survey indicates that the government is bearing a very large subsidy bill, with the food subsidy bill being one of the largest. It would be imperative to taper off the subsidies over a period of time to support deeper structural reforms. The social pressures for supporting the underprivileged while balancing the short term imperative of boosting public investment and not upsetting the fiscal discipline continues to be a challenge.