The highlights of the Investment and Savings situation as brought out by Economic Survey 2017-18 tabled in Parliament today are as follows:-

India’s unprecedented climb to historic high levels of investment and saving rates in the mid-2000s has been followed by a pronounced, albeit gradual, decline. This current episode of investment and saving slowdown is still ongoing.

• The ratio of domestic saving to GDP reached 29.2 per cent in 2013 to a peak of 38.3 per cent in 2007, before falling back to 29 per cent in 2016.

• The cumulative fall over 2007 and 2016 has been milder for investment than saving, but investment has fallen to a lower level.

Based on the break-up of investment and saving, that is available up to 2015-16, private investment accounts for 5 percentage points out of the 6.3 percentage point overall investment decline over 2007-08 and 2015-16.

Asian countries faced the largest number of slowdown episodes following 1997. Currently (after 2008), these economies are in the era of saving slowdowns. In India, the investment slowdown started in 2012, subsequently intensified and was apparently still continuing as of the latest date, that for 2016.

Since investment slowdowns are more detrimental to growth than savings slowdown, so, policy priorities over the short run have focused on reviving investment by mobilizing saving, via attempts to unearth black money and encouraging the conversion of gold into financial saving. The share of financial saving is already rising in aggregate household saving – with a clear shift visible towards market instruments – a phenomenon that has been helped by demonetization.

The cross-country experience to study the pattern of investment and saving slowdowns has revealed that the investment slowdowns have an impact on growth but not necessarily saving. The policy conclusion is urgent prioritization of investment revival to arrest more lasting growth impacts, as the government has done with plans for resolution of bad debts and recapitalization of public sector banks.

The Union Minister for Finance and Corporate Affairs, Shri Arun Jaitley tabled the Economic Survey 2017-18 in Parliament today.

Based on the firm footing provided by the discernible improvements in most fiscal indicators such as revenue buoyancy, expenditure quality, tax devolution and deficits, the Government, in partnership with the States, ushered in the long-awaited GST era with effect from July,2017. The GST was unveiled after comprehensive preparations, calculations and multi-stage consultations, yet the sheer magnitude of change meant that it needed to be carefully managed. The Government is navigating the change and challenges, including the possibility that a substantial portion of the last-month GST collections may spill over to the next year, the Survey says.

The data on Central Government finances available till November 2017 from the Controller General of Accounts (CGA) suggests that during the first eight months of the current year 2017-18 the Gross Tax Collections are reasonably on track; and the robust progress in disinvestment compensates to a great extent for the sluggish pace in non-tax revenue. The growth in direct tax collections of the Centre has kept pace with the previous year and is expected to meet targets, with a growth of 13.7 per cent while indirect taxes grew by 18.3 per cent during April-November 2017.

The eventual outcome in indirect taxes during this year will depend on the final settlement of GST accounts between the Centre and the States and the likelihood that only taxes for eleven months (excluding IGST on imports) will be realized. The States’ share in taxes grew by 25.2 per cent during April-November 2017, much higher than the growth in net tax revenue (to Centre) at 12.6 per cent and of gross tax revenue at 16.5 per cent.

As an information repository, the Goods and Services Tax (GST) provides a radical change and a new insight into the understanding of the Indian economy. Preliminary analysis of this information yields the following feast of findings. There has been a fifty percent increase in the number of indirect taxpayers; and a large increase in voluntary registrations, especially by small enterprises that buy from large enterprises and want to avail themselves the input tax credits. The distribution of the GST base among the states is closely linked to the size of their economies, allaying fears of major producing states that the shift to the new system would undermine their tax collections. Data on the international exports of states (the first in India’s history) suggests a strong correlation between export performance and states’ standard of living. India’s exports are unusual in that the largest firms account for a much smaller share of exports than in other comparable countries. India’s internal trade is about 60 percent of GDP, even greater than estimated in last year’s Survey and comparing very favorably with other large countries. India’s formal sector, especially formal non-farm payroll, is substantially greater than currently believed. Formality defined in terms of social security provision yields an estimate of formal sector payroll of about 31 percent of the non-agricultural work force; formality defined in terms of being part of the GST net suggests a formal sector payroll share of 53 percent.

The advancing of the budget cycle and processes by almost a month gave considerable leeway to the spending agencies to plan in advance and start implementation early in the financial year, leading to a robust pace of progress of Central expenditure.

Sound Public financial management has been one of the pillars of India’s macro  economic stability in the last three years. In accordance with this, the Fiscal Deficit, Revenue Deficit as well as the Primary Deficit has been declining for  the past 3 years.

FISCAL INDICATORS AS PERCENTAGE OF GDP

The early pick-up in expenditure coupled with front-loading of some expenditure and increased interest outgo exerted pressure on fiscal deficit which expanded to 112 per cent of budget estimates by November 2017. A good part of this growth is likely to normalize as the year progresses.

If indications and patterns till November are to hold, then the States taken together may be able to meet  their targeted level of fiscal deficit in 2017-18.

The Economic Survey 2017-18 focuses on the need to address the issues of pendency, delays and backlogs in the appellate and judicial arenas towards Ease of Doing Business. These issues, it says hamper dispute resolution and contract enforcement, discourage investment, stall projects, hamper tax collection, stress tax payers and escalate legal costs. The Survey suggests coordinated action between government and the judiciary to boost economic activity in the country. The Union Minister for Finance and Corporate Affairs, Shri Arun Jaitley tabled the Economic Survey 2017-18 in Parliament today.

The Economic Survey notes that India jumped 30 places to break into the top 100 for the first time in the World Bank’s Ease of Doing Business Report (EODB), 2018. The rankings reflect the government’s reform measures on a wide range of indicators. India leaped 53 and 33 spots in the taxation and insolvency indices, respectively, on the back of administrative reforms in taxation and passage of the Insolvency and Bankruptcy Code (IBC), 2016. It also made strides on protecting minority investors and obtaining credit, and retained a high rank on getting electricity, after a 70 spot rise in EODB, 2017 due to the government’s electricity reforms. The Survey however says that India continues to lag on the indicator on enforcing contracts, marginally improving its position from 172 to 164 in the latest report.

The Survey emphasizes the importance of an effective, efficient and expeditious contract enforcement regime for economic growth and development. It says that a clear and certain legislative and executive regime backed by an efficient judiciary that fairly and punctually protects property rights, preserves sanctity of contracts and enforces the rights and liabilities of parties, is a prerequisite for business and commerce.

The Government has taken a number of actions to improve the contract enforcement regime. Some of the steps briefly are as follows:-

• Scrapping of over 1,000 redundant legislations.

• Amending the Arbitration and Conciliation Act, 2015.

• Passing the Commercial Courts Commercial Divisions and Commercial Appellate Division of High Courts Act, 2015.

• Expanding the Lok Adalat Programme .

• The Judiciary has at the same time expanded the National Judicial Data Grid (NJDG) and is near to ensuring that every High Court is digitized.

The Survey attempts to make a preliminary enquiry at highlighting the developments based on new data compiled for the survey, which it says are simple and stark:- • High number of delays and pendency of economic cases in the Supreme Court, Economic Tribunals and Tax department are taking severe toll on the economy, in terms of stalled projects, mounting legal costs, contested tax revenues and reduced investment.

• Delays and pendency are caused due to the increase in overall workload of the judiciary, in turn due to expanding jurisdictions and use of injunctions and stays; in the case of tax litigation, this stems from government persisting with litigation despite high rates of failure at every stage of the appellate process; and • Actions by courts and government acting together can considerably improve the situation.

The Economic Survey also suggests that the Government could consider including efforts and progress made in alleviating pendency in the lower judiciary as a performance-based incentive for States. Expenditure could be prioritized for filing, service and other delivery related issues that tend to cause maximum delays. However, the review cautions that building additional judicial capacity may not be effective unless existing capacity is fully utilized.

The Survey goes on to note that the Government and the Courts need to both work together for large-scale reforms and incremental improvements to combat a problem that is taking a large toll on the economy. It suggests some steps, which in brief are as follows:-

• Expanding judicial capacity in lower courts and reducing existing burden on High Courts and The Supreme Court.

• Considering its low success rate the tax department could exercise greater self restraint by limiting appeals.

• Substantially increasing state expenditure on the judiciary, particularly on modernization and digitization.

• Building on the success of the Supreme Court, creating more subject-matter and stage-specific benches that allow the Court to build internal specialization and efficiencies in combating pendency and delay.

• Courts could consider prioritizing stayed cases, and impose stricter timelines within which cases with temporary injunctions may be decided, especially when involving government infrastructure projects.

• Improving Courts Case Management and Court Automation Systems.

The Survey concludes by noting that recent experience with GST has shown how vertical cooperation between the Centre and States – Cooperative Federalism – has brought transformational economic policy changes. It says that perhaps there is scope for a horizontal variant – which it coins as Cooperative Separation of Powers that could be applied to the relationship between the judiciary on one hand, and the executive/legislature on the other.