After touching a low of 5.7 per cent GDP growth, India’s economy is “picking up quite nicely” , the annual Economic Survey 2017-18 tabled in Parliament on Monday said. It predicted that India would clock a growth of 6.75 per cent this fiscal and will rise to 7 to 7.5 per cent in 2018-19, which would be the election year for the government.

Addressing the media, Chief Economic Adviser Arvind Subramanian, the author of the Survey,  said India will be the world’s fastest growing major economy as it shakes off the disruptive effects of demonetisation and the Goods and Services Tax (GST). The numbers projected in the Economic Survey are not very different from that estimated by the World Bank and the International Monetary Fund.

“With world growth likely to witness moderate improvement in 2018, expectation of greater stability in GST, likely recovery in investment levels, and ongoing structural reforms, among others, should be supporting higher growth. On balance, the country’s economic performance should witness an improvement in 2018-19,” Subramanian said, though he cautioned on rising oil prices and sharp correction in elevated stock prices as factors that could feed inflation and keep interest rates elevated. With the effort to recapitalise banks, popularly called the solving of twin balance sheet problem will help the economic growth, the Survey said.

The government, which is about to present its last full Union Budget before the 2019 general election, has reverted to the tradition of bringing out Volumes 1 and 2 at the same time. Volume 1 of the Economic Survey contains the analytical overview and more research-cum-analytical material. Volume 2 provides the more descriptive review of the current fiscal year, encompassing all the major sectors of the economy. The Survey has a pink cover instead of the earlier blue. Subramanian noted that “the colour of this year’s Survey cover was chosen as a symbol of support for the growing movement to end violence against women, which spans continents and addressing the deep societal meta-preference in favor of sons”.

The Survey cautioned that persistently high oil prices remained a key risk for a country that relies on imports for much of its fuel needs. The Modi-led BJP government was lucky to have taken charge at a time when global business environment was favorable and depressed global crude oil prices placed at his disposal lakhs of crores of rupees. Subramanian admitted that the government had misread the oil price projections completely. He said, “We have misread oil prices completely. We had thought that oil prices will not go above $55 or maximum $60 per barrel. We have proven wrong on that. We thought that shale oil will come back at about $50-55, so far it has not come back. We have discovered that the shale producers are more concerned about their profit margins than about expanding activities. A completely unforeseeable thing that has happened in Saudi Arabia is the Aramco listing is pushing oil prices higher than it is expected.”

The Economic Survey also noted that though the plan has been to reduce the fiscal deficit from an estimated 3.2 per cent this year to 3.0 per cent in financial year 2018-19, a pause in the move toward a lower deficit could be merited in order to give the economy momentum.

This also has a bearing on how the government finds itself in a place where it needs to revive the economy in the year leading up to a general election. Subramanian explained how demonetisation delivered a shock to the economy, reducing demand and hampering production especially in the informal sector. According to him, the shock had largely faded away by mid-2017, only for the government’s roll out of the Goods and Services Tax to hit the economy, “affecting supply chains, especially those in which small traders (who found it difficult to comply with the paperwork demands) were suppliers of intermediates to larger manufacturing companies”.

Another alarm bell raised by the Chief Economic Adviser was about an overheated stock market. Subramanian said since India’s markets have seen sudden and substantial reallocation of wealth from gold and real estate. People are increasingly parking their wealth in the market and it could crash, suddenly, stressing not just the individual investors but the entire country’s economy, he warned.

The introduction of GST for creating a unified market is also helping formalise the Indian economy and should, over time, result in an increase in tax revenue, the Survey said. It pointed out that it has already resulted in an increase in the number of enterprises that pay indirect taxes.

The biggest issues facing the Narendra Modi government in the run-up to the Lok Sabha elections in 2019 are employment and the ongoing crisis in agriculture. The Survey picked both as issues that need to be addressed immediately. Worryingly, it pointed out that “climate change ~ whose imprint on Indian agriculture is already visible ~ might reduce farm incomes by up to 20-25 per cent in the medium term”.  On employment, the Survey listed “private investment and exports” as the only two “truly sustainable engines”. India would do well to focus its efforts on creating an environment conducive to private investment and on increasing its export competitiveness, it said.

Subramanian mentioned that among the positive lessons from the year past was the efforts begun to shift India away from a prevailing mindset. “Speaking of the positive lessons of last year, the last 50-60 years have seen a shift in attitude from what I call… and I claim the patent for these definitions..from crony socialism to stigmatised capitalism,” he said.

He added that “it is this stigmatised capitalism that has made reform of the twin balance sheet (TBS) problem very difficult,” referring to the phenomenon of heavily leveraged corporates, as well as the related problem of massive accumulated non-performing assets (NPAs) of state-run banks.