Economic Survey says meeting economic growth target of 6.75-7.5% hard

11 August, 2017, 17:52 | Author: Leticia Walters
  • Economic Survey 2016-17 Vol II | India's fiscal deficit gap may decline to 3.2 per cent of GDP in FY18: Jaitley

Noting that most states and UTs saw a sharp decline in CPI inflation in 2016-17 compared with the previous year, the document stated, "Both rural and urban inflation declined in 2016-17 and the gap between rural and urban inflation has narrowed in recent months".

The Survey has come out with a pessimistic view on growth forecast with downward risk to the earlier estimated growth range of 6.75-7.5 per cent GDP growth for 2017-18. "More dramatic have been developments during 2016-17- inflation declined sharply from 6.1 percent in July 2016 to 1.5 per cent in June 2017", it said. "There are 5.4 lakh New Tax Payers Post-Demonetisation and its impact on the informal economy has increased".

The survey, authored by Chief Economic Adviser Arvind Subramanian, also said inflation was expected to remain below the Reserve Bank of India's (RBI) 4 per cent target through to the end of the fiscal year. Farm loan waivers could cut economic demand up to 0.7% of GDP and likely to give deflationary shock to the economy.

"These include stressed farm revenues, as non-cereal food prices have declined; farm loan waivers and the fiscal tightening they entail; and declining profitability in the power and telecommunication sectors, further exacerbating the TBS (twin balance-sheet) problem", the Survey said.

The Survey is concerned over the under-performance of the economy and said it is operating below its potential.

A number of indicators - GDP, IIP, credit offtake, investment and capacity utilisation - point to a deceleration in real activity since first quarter of 2016-17 and a further deceleration since the third quarter.

The survey said slowdown in the sector was mainly due to deceleration in growth in two services categories - trade, hotels, transport, communication and services related to broadcasting (7.8 per cent), and financial, real estate and professional services (5.7 per cent).

Subramanian said the loan waivers were likely to be deflationary as the states would have to either raise taxes or cut spending to keep their budget deficits in check. "The balance of probabilities has changed accordingly, with outcomes closer to the upper end having much less weight than previously".

But on Friday it warned there were several factors including the appreciation of the rupee and the introduction of a new goods and services tax that could hit growth.

The Survey notices rekindled optimism on structural reforms in the Indian economy. "It said the government and the RBI have taken prominent steps" to address the twin balance sheet challenge which has boosted market confidence in the short run.

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