February 19, 2018

Economic Survey-2 flags risks to growth, backs rate cuts

12 August 2017, 12:11 | Rufus Hill

Tough to achieve 7.5% GDP growth predicted in February, Finance Ministry admits in Economic Survey

Economic Survey 2016-17 Vol II | India's fiscal deficit gap may decline to 3.2 per cent of GDP in FY18: Jaitley

"The conclusion is inescapable that the scope for monetary easing is considerable", it said.

According to the survey, the economy has faced a slew of challenges including appreciation of the rupee, farm loan waivers, rising stress on balance sheets in power as well as telecom sector, and transition issues arising from implementing the Goods and Services Tax (GST).

Subramanian said India is undergoing a structural shift in the inflationary process toward low inflation.

The Finance Ministry on Friday tabled the second volume of the Economic Survey for the financial year 2016-17, which stated that it will be hard for the government to achieve real gross domestic product growth of 6.75%-7.5% in this financial year.

With the survey's release, industry bodies such as CII, FICCI and Assocham hailed steps taken by the Government to resolve the twin balance-sheet problem, but the market shrugged off the move and ended in the red. "CPI inflation fell to a series low of 1.5% in June 2017", the survey noted.

The economic survey-volume two tabled in Parliament on Friday has suggested that Indian Railways should explore the non-fare revenue sources for growth. "Has cash come down in economy? This is substantially greater than the long-run average of 18, and not far from the frothy levels reached in 2007", it said.

"We can confidently say that about 5.4 lakh additional taxpayers were added post demonetisation, which might not have happened otherwise".

"Whether the increase in taxpayers will lead to more taxes remains to be seen", he said. The reported taxable income has not gone up by as much because many of these new filers are reporting a taxable income around the threshold.

Pointing out the benefits of demonetisation, Subramanian said that there has been a substantial increase in digitalisation across all categories such as the poor as well as the less affluent class of the society.

"Farm loan waivers by states could amount to anything between Rs 1.25 lakh crore to Rs 2.75 lakh crore", he said. It said, "This growth suggested that the economy was relatively resilient to the large liquidity shock of demonetisation which reduced cash in circulation by 22.6% in the second half of 2016-17".

The November demonetization took a toll on the Indian economy with the Gross Domestic Product (GDP) during the fourth quarter, ending March this year, falling sharply to 6.1 percent from seven per cent in the previous quarter while growth for entire 2016-17 also declined correspondingly.

He listed GST receipts, growth outlook, receipts from telecom spectrum and 7th Pay Commission outgo on government employees salary as downside risks.

On the expected lines, the Survey stated fiscal deficit expected to decline to 3.2 per cent of GDP in FY2018 compared with 3.5 per cent in FY2017. It said that these concerns are weighing heavy on the economy and keeping it away from its potential.

"A cut in interest rates would spur demand, push up capacity utilisation rates and help reduce pressure on the corporate balance sheets thereby enabling them to plan for fresh investments".

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