5 Challenges that Lie Ahead of India According to the Economic Survey 2018 The Economic Survey outlines the rise in oil prices and lack of credit as major problems for the Indian economy
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As the country readies itself for the Union Budget 2018-19, the last one for Narendra Modi's term as Prime Minister before the general elections in 2019, the Economic Survey 2018 was recently tabled in the Parliament.
One of the highlights of the survey is India's estimated growth in GDP at 7-7.5 per cent in 2018-19. This is in accordance with the 2018 Global Economics Prospect (GEP) released by the World Bank which stated that India's GDP growth will be 7.3 per cent in 2018-19.
But that wasn't the only respite the government had. The Indian economy has seen a 50 per cent increase in the number of indirect taxpayers and more than half of the non-farm workforce is now employed in firms that pay taxes.
But the economic survey also shows the various challenges that lie ahead for India for the financial year 2018-19. We take a look at the challenges and how India plans to battle them.
Ease of Doing Business: Is it Really That Easy?
India jumped 30 spots to rank 100 in the Ease of Doing Business list brought out by World Bank. While the improvement brought laurels for the Modi government, there are various sectors which still need the government's attention to further accelerate the speed at which businesses are done in India. While India saw an improvement in six out of ten indicators of ease of doing business, the country still didn't see improvement in trading across borders, something that the government has been gunning for at various international forums like World Economic Forum. There are various factors that need to be acknowledged by the government to make establishing a business in India an easier task. With several procedures involved in building a business from the scratch, the bureaucracy often slows down the entire process.
However, the Indian government is considering the same by introducing reforms. Construction permits where the time frame for approvals during the construction cycle of a building has been brought down to 60 days, they have also recognized the procedure for corporate debtors through insolvency ecosystem. To ensure that tax compliances have the taxpayer as a priority, the government has also introduced "RAPID- revenue, accountability, probity, information and digitalization' for administrating the tax reforms.
To improve trade across borders, online message exchange system for import clearances of agricultural commodities has been established along with the Import Data Processing and Management System (IDPMS) for data processing for payment.
Rising Oil Prices
One of the biggest challenges evident from the survey is the rise in oil prices. The higher oil prices in Saudi Arabia could have a drastic effect on the prices in India. The survey indicated that with the $10 per barrel increase in oil price, the GDP is expected to come down by 0.2-0.3 per cent which will further worsen the Current Account Deficit by $9-10 billion dollars.
The global crude oil prices saw a three-year high as the Brent crude and US West Texas Intermediate witnessed a jump. India, which is the world's third largest importer of oil, will be affected by the same as the higher prices of crude oil will result in an increase in the trade deficit while also affecting the valuation of the rupee.
India's Agrarian Crisis
India is primarily an agrarian economy accounting for 7.68 per cent of the total global agricultural output. Indian agricultural sector contributes to 6.1 per cent of the Indian economy which is higher than the world's average. The sector also accounts for over 50 per cent of the workforce in the country. Agricultural products also accounts for 13.2 per cent of Indian exports.
Keeping these factors in mind, the fact that the productivity growth in the sector has been stagnant reflects poorly on the Indian economy. The survey pointed out that due to unstable climatic conditions, the growth may necessarily be not on the positive route.
The Lending Sector
Over the past few years, Indian banks have been struggling with the growing NPA issues. According to the Economic Survey, the share of bank lending to real estate sector has fallen sharply to 17 per cent in 2016 from over 68 per cent in 2013. The reason for the fall is that banks are not ready to provide credit to the real estate sector because of the rising NPAs and lower profit.
However, it's not just the real estate sector that has been witnessing a lack of credit. MSMEs which contribute to a large part of the Indian economy (the Economic Survey stated that the sector's contribution to the Gross Value Added is about 32 per cent), still face a lack of credit from the banking sector.
According to the Economic Survey, out of the total outstanding credit of INR 2.6K Billion, 82.6 per cent was for large enterprises. MSMEs on the other hand, received only 17.4 per cent of the total credit outstanding. While MSMEs too promise employment, it's the credibility of the large enterprises that takes away the credit. The National Sample Survey 73rd round conducted for 2015-16 stated that about 11.1 crore people are employed through 633.8 lakh unincorporated non-agricultural MSMEs.
Is India Ready for Competition in IT?
Not surprisingly, India is the world's largest sourcing destination for the information technology (IT) industry, accounting for approximately 67 percent of the US market.
According to the Economic Survey, ICT (Information and Communication Technology) accounted for 67 per cent of India's services exports in 2016. The same has declined rapidly from 2006 to 2016, whereas during the said period countries like China, Brazil, Russia and Philippines have been marching ahead.
According to the reports, ICT's share in China's service exports grew from 22 per cent to 40 per cent in the mentioned decade, while Brazil saw this contribution increase from 43 per cent to 55 per cent, during this period. This goes on to say that India has to ready itself for competition in this sector.