Growth in 2017-18 may be lower than 6.75-7.50 pc forecast: Economic Survey

TNN Bureau. Updated: 8/11/2017 2:55:57 PM National

The second Economic Survey of the year today indicated further downslide in the growth for 2017-18 below earlier forecast of 6.75-7.50 per cent. The survey tabled in Parliament noted with concern that the economy was yet to gather full momentum and the issues that include stressed farm revenues, decline in non-cereal food prices, farm loan waivers, fiscal tightening and declining profitability in the power and telecommunication sectors were the reasons for anxiety in the economy.

The first part of the survey presented in January had projected that the Indian economy would grow by 6.75-7.5 per cent in 2017-18. However, the document also noticed a rekindled optimism on structural reforms in Indian economy. Factors that include GST implementation, positive impacts of demonetisation, decision in principle to privatise Air India, further rationalisation of energy subsidies and actions to address the Twin Balance Sheet (TBS) challenge contributed to rekindle optimism in the economy. The Survey cautioned that anxiety reigns due to a series of deflationary impulses are weighing in the economy. On inflation front, the document stated that the current inflation was running well below the four per cent target and has suggested by March 2018 it is likely to be below the RBI’s medium term target of four per cent.

However, it also noted that, the inflation in the near-term will be determined by a number of proximate factors, including the outlook for capital flows and exchange rate which in turn will be influenced by the outlook and policy in advanced economies, especially the US, recent nominal exchange rate appreciation, the monsoon, GST introduction, 7th Pay Commission awards, likely farm loan waivers and output gap.

The Survey noted that India is moving towards a structural shift in the inflationary process toward low inflation as the oil market is very different today than a few years ago in a way that imparts a downward bias to oil prices, or at least has capped the upside risks to oil prices. It also cautioned that the farm loan waive off could reduce aggregate demand by as much as 0.7 per cent of GDP, imparting a significant deflationary shock to an economy. Demonetisation’s impact on the informal economy has increased demand for social insurance, particularly in less developed states. MGNREGS and its implementation by the government have met the programme's stated role of being a social safety net during times of need. It also adds that sustaining current growth trajectory will require action on more normal drivers of growth such as investment and exports and cleaning up of balance sheets to facilitate credit growth.


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