Friday, 18 August, 2017

Downside risks to growth, inflation to undershoot : Economic Survey

Economic Survey Vol II tabled 'Rekindled optimism on structural reforms' The economic survey is presented by the Chief Economic Adviser in this case Arvind Subramanian. Pic Reuters
Laurie Berry | 11 August, 2017, 17:52

In February, the government had forecast GDP growth of between 6.75 percent and 7.5 percent for 2017/18.

Arvind Subramanian highlighted decline in farm revenues and non-cereal food prices, farm loan waivers, fiscal consolidation and declining profitability in the power and telecommunication sectors as the factors generating deflationary tendencies.

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.

While expenditure of education during the fiscal stood at Rs 4,74,672 crore as against Rs 4,23,171 crore previous fiscal, health sector saw expenses of Rs 2,21,466 crore compared to Rs 1,91,141 crore in FY16, as per the survey.

Finance Minister Arun Jaitley tabled the second volume of Economic Survey 2016-17 in the Lok Sabha on Friday.

The second volume of the Economic Survey 2016-17, authored by Prime Minister Modi's chief economic adviser (CEA), Arvind Subramanian, released on Friday, cautioned that achieving the upper end of projections for economic growth at 6.75-7.5 percent for fiscal 2018 may be hard. "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.

That was slower than rival China, although the growth figure for the full year was still higher at 7.1 percent.

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He said structural decline in inflation and inflation outlook create scope for lower interest rates.

"Today's rate is 6 percent or about 25-75 basis points above neutral rates", it added. "The conclusion is inescapable that the scope for monetary easing is considerable".

To prop up agriculture sector, he prescribed remunerative minimum support prices (MSPs) for crops backed by effective procurement.

It expects headline inflation to remain below the RBI's medium-term target of 4 percent through to the end of March 2018 on the back of normal summer rains and the deflationary impact of farm loan waivers.

The Survey is concerned over the under-performance of the economy and said it is operating below its potential. "The preceding discussion indicates that the balance of risks seem to have shifted to the downside", the ministry said. "The balance of probabilities has changed accordingly, with outcomes closer to the upper end having much less weight than previously".

The Survey notices rekindled optimism on structural reforms in the Indian economy. Also, nominal GDP growth has accelerated post demonetisation.

Also, it added that the removal of checkposts and easing of transport constraints after GST implementation can provide some short-term fillip to economic activity.

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