Economic Survey 2017

Predictions from Economic Survey 2017

• Growth this fiscal (2016-17) to be 6.5%. The Statistics Department had earlier projected the growth rate for 2016-17 as 7.1%.
• Projected the economy to grow between 6.75% and 7.5% in 2017-18. International Monetary Fund (IMF) has projected rate of 6.6% in 2016-17 and 7.2% in 2017-18.
• GST and other structural reforms can take the trend growth rate to 8-10%. However, fiscal gains from GST will take time to realize.
• Farm sector to grow at 4.1% this fiscal, up from 1.2% last year.
• Industrial Sector growth rate to be 5.2% this fiscal, from 7.4% of last fiscal.

Specifics from Economic Survey 2017

Inflation:

Consumer Price Index (CPI) averaged 4.9% during April-December 2016 contributed substantially to the decline in CPI inflation which reached 3.4% at December end.

Reversal of WPI inflation from a trough of (-)5.1% in August 2015 to 3.4% by end of December 2016 on the back of rising international oil prices.

Fiscal Targets

• Central government is committed to achieve its fiscal deficit target of 3.5% of GDP this year.
• Consolidated deficit of the states has increased steadily in recent years, rising from 2.5% of GDP in 2014-15 to 3.6% of GDP in 2015-16, in part because of the UDAY scheme.
• For the government as a whole, there is an improvement in the fiscal deficit.

Deficits

• Current account deficit declined to about 0.3% of GDP in the first half of FY2017.
• Foreign exchange reserves are at comfortable levels, having risen from around US$350 billion at end-January 2016 to US$360 billion at end-December 2016.
• The trade deficit declined by 23.5% in April-December 2016 compared to corresponding period in previous year.

Government Debt

• Government debt to GDP in 2016 seen at 68.5%, down from 69.1% in 2015.

On Demonetization

• Demonetization to affect growth rate by 0.25-0.5%, but to have long-term benefits.
• Demonetization may affect supplies of certain agricultural products like sugar, milk, potatoes and onions.
• Its effects to return to normal as new currency comes in circulation.

On UBI

• 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.

Current Problems

• Highlights difficulties in privatizing public enterprises.
• Lists challenges that might impede country’s progress:
  • Ambivalence about property rights and the private sector.
  • Deficiencies in state capacity in delivering essential services
  • Inefficient redistribution.

Suggestions from Economic Survey 2017

• Suggests the need to further privatize the Civil Aviation, Banking and Fertilizer sectors.
• Prescribes cut in individual I-T rates, real estate stamp duties.
• Tax administration to be improved to reduce discretion and improve accountability.
• Suggests gradual widening of Income Tax net by encompassing all high income earners.
• Efforts to collect taxes on disclosed and undisclosed wealth should not lead to tax harassment.
• Suggests setting up Public Sector Asset Rehabilitation Agency (PSARA) to take charge of bad loans.

Outlook for 2016-17 according to Economic Survey 2017

• Effects of Demonetisation:
  • An aggregate demand shock due to reduction in Supply of Money.
  • Uncertainty shock due to uncertainty over the magnitude and duration of the cash shortage and the policy responses.

• In the third quarter of FY2017 (when demonetisation was introduced):
  • Cash declined by 9.4%.
  • Demand Deposits increased by 43%.
  • Growth in the sum of the two by 11.3%.
  • Corresponding figures of the previous year were 12.5%, 10.5% and 11.7%, respectively.

• As of January 15, 2017, aggregate sowing of the two major Rabi crops; Wheat and Pulses exceeded last year’s planting by 7.1% and 10.7%, respectively.
• GDP growth expected to be in the 6¾ to 7½% range in FY2018.
• Fiscal windfall likely from Pradhan Mantri Garib Kalyan Yojana, low oil prices.
• India to remain the fastest growing major economy in the world.