While cautioning against pessimism, India's Chief Economic Adviser and author of the Economic Survey 2018 Arvind Subramanian has flagged the possibility of the economy taking a hit due to four headwinds in the post-Global Financial Crisis era. He calls them the Four Horsemen of Apocalypse, a reference to a Biblical story in the Book of Revelation in which horsemen rampage across the world, bringing with them death and devastation. "These headwinds include: the backlash against globalisation, which reduces exporting opportunities; the difficulties of transferring resources from low productivity to higher productivity sectors (structural transformation); the challenge of upgrading human capital to the demands of a technology-intensive workplace; and coping with climate change-induced agricultural stress. India has so far defied these headwinds but can continue to do so only if the challenges are decisively addressed," the Economic Survey says.
Coming at a time when there are serious concerns over the state of the economy and the pace of growth in the aftermath of demonetisation and the botched-up implementation of the GST, and amidst growing concern over rising oil prices and fears of the US Federal Reserve hiking interest rates, the Economic Survey paints a rosy picture of a 7-7.5% growth in 2018-19, ahead of the Union Budget presentation on Thursday. It claims that growth is on track, revenue collection is on the rise, and fiscal deficit is under reasonable check. However, it also underlines areas of grave concern. Farmers are suffering due to declining incomes and climate change is likely to increase the burden on the already stressed rural economy. The fiscal deficit has already overshot the target and rising oil prices threaten to put further pressure on it, apart from impacting the current account deficit. Worse, the government is unable to spend enough on schemes on education and public health despite boasting about its economic performance. Crucially, growth has failed to lead to creation of jobs.
The Economic Survey is a wake-up call and the government can ignore Subramanian's sane counsel at its peril. This will be the Modi government's last full-fledged Budget before the 2019 general elections. It must shun the temptation to be populist. The Economic Survey recommends focus on three areas: employment, agriculture and education. Government must focus on education, skilling and health while doing all it can to push up investment, both public and private. In agriculture, its priority should be measures that can help raise productivity and agricultural resilience. To mitigate the expected impact of climate change on farm incomes, the government must speedily spread irrigation against the backdrop of rising water scarcity. None of this is easy, but the government can do its best by keeping its eye on the economy, rather than on politics.