Government flags growth risks, pushes for monetary easing

The Economic Survey expects fiscal deficit to decline to 3.2% of GDP in FY18 compared with 3.5% in FY17

In a first of its kind mid-year economic survey, the government highlighted that achieving the upper-end of 6.75-7.5 percent growth will be hard in 2017-18, putting to rest earlier projections that cited a growth rate of 6.75-7.5 percent in the current fiscal.

Hard to achieve upper end of 6.75-7.5 per cent real GDP growth predicted in January.

The Government is committed to invest more on qualitative infrastructure with an aim to make India an advanced, inclusive and a just economy, Economic Survey Volume II tabled in Parliament said.

The first volume of the Survey in February had predicted the range of GDP growth of between 6.75-7.5 per cent, factoring in more buoyant exports, a post-demonetisation catch-up in consumption and a relaxation in monetary conditions consequent upon demonetisation. "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 also said retail inflation was expected to remain below the Reserve Bank of India's (RBI) medium-term target of 4 per cent up to the end of March 2018.

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 called for a further drop in interest rates - now at 6 percent after a 25 basis points cut last week.

On the structural reform agenda, the Survey said the Government is implementing GST, Air India privatisation, further cutting down on energy subsidies, addressing twin balance sheet challenge facing banks. "CPI inflation fell to a series low of 1.5 per cent in June 2017", the Survey noted. Farm loan waivers could cut economic demand up to 0.7% of GDP and likely to give deflationary shock to the economy.

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.

Stating that there are early signs of tax base expanding under GST and nominal GDP growth has accelerated after demonetisation, the CEA said in a press conference later "Demonetisation will continue to pay dividends over time".

The Survey wanted stock limits and movement curbs on farm goods to end and credit off-take from banks to pick up.

Citing the example of the USA, it said the "Buy American, Hire American" Presidential executive order called for the collection of data, increased oversight and enforcement actions, and the development of administration plans to reform and curtail the high skill visa programmes.



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