Economic Survey Part II: Growth in tax revenue achieved by Centre

The Survey's second part, which includes the mid-year review, was tabled by finance minister Arun Jaitley. There is "growing confidence that macro-economic stability has become entrenched", the survey said.

The Economic Survey suggested a rate reduction of up to 50-100 basis points, arguing that inflation has been below the target for 10 months and is expected to remain under the 4% comfort level this year.

Achieving the high end of the 6.75-7.5 per cent growth projected previously will be hard due to appreciation of rupee, farm loan waivers and transitionary challenges from implementing GST, the Economic Survey said on Friday. Based on the current and its projection of inflation, the Survey concluded that "real policy interest rates (net of inflation) are now high" and added that they were higher than comparable emerging market economies.

It 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.

If other states will follow the UP model, an upper bound of loan waivers at the all-India level would be between Rs 2.2 and Rs 2.7 lakh crore, it said, adding that demands for farm loan waivers have emerged at a time when state finances have been deteriorating.

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.

The November demonetisation 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 per cent from seven per cent in the previous quarter while growth for entire 2016-17 also declined correspondingly. The economic survey, however, took the view that India's inflation is undergoing a "structural shift". "As per Survey calculations, private investment growth is estimated to be negative in 2016-17".

The first set of official indicators on economic growth for the fiscal will be available on August 31 when the Central Statistics Office will release the quarterly GDP estimate for April-June 2017. "It turns out, we seem to have achieved 20 per cent reduction in equilibrium cash holding", he said. "Sluggish growth and increasing indebtedness in some sectors of the economy have impacted the asset quality of banks and this is a cause for concern", the Survey said.

The Survey points to scope of further monetary easing by the RBI. The services growth moderation is mainly due to deceleration in growth in two services categories- trade, hotels, transport, communication and services related to broadcasting (7.8 per cent), and financial, real estate and professional services (5.7 per cent), the Survey said.

India's government sees need for more monetary easing amid rising downside risks to growth and weak inflation.

Vanessa Coleman