Economic Survey-2 flags risks to growth, backs rate cuts

India Cautioned Over Risks to Projected Growth

India Cautioned Over Risks to Projected Growth

The Survey also highlights the fact that there has been significant moderation in CPI headline inflation during the last three years and that the current inflation is running well below the 4 per cent target, suggesting that inflation by March 2018 is likely to be below the RBI's medium term target of 4 per cent.

The deflationary impulses in the economy need to be countered through all possible policy levers as identified in the Economic Survey, FICCI said.

According to the survey, the economy has faced a slew of challenges including appreciation of the rupee, farm loan waivers, rising stress on balance sheets in power as well as telecom sector, and transition issues arising from implementing the Goods and Services Tax (GST). Since February 2017, the rupee has appreciated by about 1.5 percent.

The document said that, with inflation now at well below the 4% target, by March 2018 it is likely to be below the RBI's medium-term target of 4%. "The macro-economic challenge will be to counter the deflationary impulses through key monetary, fiscal and agricultural policies", the survey said, adding that sustaining the 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.

While expenditure of education during the fiscal stood at Rs 4,74,672 crore as against Rs 4,23,171 crore previous fiscal, health sector saw expenses of Rs 2,21,466 crore compared to Rs 1,91,141 crore in FY16, as per the survey.

Trump doesn't think Iran in compliance with nuclear deal
Yesterday, the president accused Iran of not "living up to the spirit" of the deal it struck with major powers including Washington , reiterating that he viewed it as a "horrible agreement".

The second volume of Economic Survey 2016-17 which was tabled in the parliament on Friday said that it noticed a "rekindled" optimism on structural reforms in Indian economy. "It seems something quite substantial has been achieved", Subramanian said.

The economists in the finance ministry are clearly hammering away at the deflation risk in the first few pages of the Economic Survey, given the recent debates about whether the Reserve Bank of India is keeping monetary policy too tight.

It states that there may be a slowdown in growth in real activity in indicators such as Gross Domestic Product (GDP), Index of Industrial Production (IIP), credit, investment, and capacity utilisation since first quarter of 2016-17. These include: stressed farm revenues, as non-cereal food prices have declined; farm loan waivers and the fiscal tightening they will entail; and declining profitability in the power and telecommunication sectors. The RBI recently cut repo rate by 25 basis points bringing interest rates down to 6%. The conclusion is inescapable that the scope for monetary easing is considerable, it said.

Stating that there are early signs of tax base expanding under GST and nominal GDP growth has accelerated after demonetisation, the CEA said in a press conference later "Demonetisation will continue to pay dividends over time".

Post-demonetisation, a new enforcement and compliance regime and increased digitalisation have reduced the use of cash for transactions, the survey said.

Latest News