Economic survey warns of uncertain fiscal outlook, lists challenges

Highlighting uncertain fiscal outlook for the current fiscal year, Economic Survey Part-2 tabled Friday in Parliament, said attaining 6.75-7.5 per cent GDP growth projected previously will be hard due to appreciation of rupee, farm loan waivers and transitionary challenges from implementing GST. Reacting to the Economic Survey for 2016-17, Sharma said, "The Indian Economy has been in continuous decline which has been unabated and certain decisions of the government have further aggravated the situation".

Optimistic about the medium-term growth prospects, Chief Economic Advisor to Finance Ministry Arvind Subramanian on Friday said that all policy tools must be taken up to revive growth over the short term. It saw farm loan waivers by states touching Rs 2.7 lakh crore. Farm loan waivers could cut economic demand up to 0.7% of GDP and likely to give deflationary shock. Unless profit growth of companies is rapid, there is a strong tendency for correction in stock prices all over the world, illustrated for India in the aftermath of the boom of the mid-2000s. Also, a series of government and RBI actions and structural changes in the oil market have reduced the risk of sustained price increases, it said. The growth in real fixed investment was low since the second half of 2012-2013 and declined steeply after a temporary spurt in the second half of 2015-2016.

The mid-year survey of the economy described foreign direct investment (FDI) as an enabler of economic growth since it enhances productivity by bringing capital, skills and technology to the host country.

In February, the survey had forecast a range for real GDP growth of 6.75 percent to 7.5 percent for FY 2018. "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 CEA stressed that benefits of demonetisation are showing as cash usage in the economy has come down.

The $2 trillion economy is still recovering from Modi's unprecedented cash ban imposed late a year ago.

There was also a spurt in new taxpayers and reported income after demonetisation with a total of 5.4 lakh new taxpayers, 1 per cent of the total taxpayer base, getting added.

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.

Disinflationary pressures allowed the Reserve Bank of India (RBI) last week to cut its main policy rate - the first easing by an Asian central bank this year - by 25 basis points to 6 percent, the lowest since November 2010.

Vanessa Coleman