March 30, 2017

India’s Growth Rate Recovering Faster After Note Ban, Says Economic Survey

India’s Growth Rate Recovering Faster After Note Ban, Says Economic Survey

India’s economy should grow between 6.75 percent and 7.5 percent in the financial year beginning on April 1, said the Economic Survey by government for the year 2017-18.

The cash ban, however, will slow down growth for 2016/17 to below 7%, said the Economic Survey, which is an annual government report on the economy that also sets the tone for the general budget and floats new policy ideas. The Economic Survey, which sets the scene for finance minister Arun Jaitley’s fourth annual budget on Wednesday, forecast that Asia’s third-largest economy should steady after a hit from the government’s shock decision in November to scrap most cash in circulation.

The survey was prepared by the finance ministry’s chief economic adviser Arvind Subramanian.

Here are the highlights of the report:


* 2017/18 GDP growth seen between 6.75 and 7.5% year on year

* GDP growth rate at constant market prices for the current year 2016/17 is placed at 7.1%

* The federal statistics office’s estimate of 7.1% growth for 2016/17 likely to be revised downwards

* Service sector is estimated to grow at 8.9% in 2016/17

* Industrial growth rate expected to moderate to 5.2% in 2016/17 from 7.4% in 2015/16

* The agriculture sector is estimated to grow at 4.1% in 2016/17 as opposed to 1.2% in 2015/16

Fiscal deficit

* Implementation of wage hike, muted tax receipts to put pressure on fiscal deficit in 2017/18

* Need for fiscal prudence for both centre and states for fiscal health of the economy

* Fiscal windfall from low oil prices to disappear in 2017/18 – TV channels


* The average consumer price index (CPI) inflation rate declined to 4.9% in 2015/16 from 5.9% in 2014/15

* CPI-based core inflation has remained sticky in the current fiscal year averaging around 5%

* Oil prices, seen rising by one-sixth in 2017/18 over 2016/17 prices, could dampen India’s economic growth


* Remonetisation will ensure that the cash squeeze is eliminated by April 2017

* Supply of currency should follow actual demand and not be dictated by official estimate of desirable demand

* Government windfall arising from unreturned notes should be deployed towards capital spending

Monetary policy

* Sharp rise in prices in 2017/18 may cap monetary easing headroom – ET NOW on Twitter

* Market interest rates seen lower in 2017/18 due to demonetisation – ET NOW on Twitter

Government debt

* Government debt to GDP ratio in 2016 seen at 68.5% down from 69.1% in 2015


* Suggests setting up public sector asset rehabilitation agency to take charge of large bad loans in banks

* Central agency with government backing could overcome coordination and political issues on bad loans


* Income tax rates and real estate stamp duties could be reduced

* Timetable for reducing corporate tax rate could be accelerated

Universal basic income

* Universal Basic Income (UBI) proposal a powerful idea, but not ready for implementation

* UBI an alternative to plethora of state subsidies for poverty alleviation; UBI would cost between 4 and 5% of GDP.


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