Monday, 18 December, 2017

Inflation to stay below RBI's target of 4%: Economic Survey

Economic Survey 2016-17 Vol II | India's fiscal deficit gap may decline to 3.2 per cent of GDP in FY18: Jaitley Tough to achieve 7.5% GDP growth predicted in February, Finance Ministry admits in Economic Survey
Christy Curtis | 12 August, 2017, 00:13

Citing deflationary impulses, it stressed that farm revenues, decline in non-cereal food prices, loan waivers, fiscal tightening and declining profitability in the power and telecom sectors are weighing on the economy.

In a first of its kind mid-year economic survey, the government highlighted that achieving the upper-end of 6.75-7.5 percent growth will be hard in 2017-18, putting to rest earlier projections that cited a growth rate of 6.75-7.5 percent in the current fiscal. Retail inflation in June fell to its lowest level in more than five years to 1.54 per cent. "The apparent resilience was even more marked in nominal growth magnitudes because both nominal GVA and GDP growth accelerated by over 1 percentage point in 2016-17 compared with 2015-16".

The Federation of Indian Chambers of Commerce and Industry (FICCI) urged for the need to enable a further cut down of policy rates by the Reserve Bank of India (RBI), to spur demand and help ease the pressure on corporate balance sheets. Such loan waivers, the Survey said, could reduce aggregate demand by as much as 0.7 per cent of GDP, imparting a significant deflationary shock to the economy.

" CPI inflation by March likely to remain below 4 per cent".

His Survey stated that there was "considerable" scope for further easing in monetary policy as the repo rate was 25-75 basis above the neutral rate. "Cyclical conditions suggest that the policy rate should actually be below".

To prop up agriculture sector, he prescribed remunerative minimum support prices (MSPs) for crops backed by effective procurement.

"The survey is a comprehensive and forthright document which lucidly and cogently articulates the current challenges and offers credible solutions for restoring the economy on its potential growth path", CII Director General Chandrajit Banerjee said in a statement.

The Economic Survey said, "Various factors such as launch of the GST; Positive impacts of demonetisation; decision in principle to privatise Air India; further rationalisation of energy subsidies and Actions to address the Twin Balance Sheet (TBS) challenge contribute to this optimism". "Demonetisation should continue to pay dividends over time as the impetus towards formalising the economy and expanding tax base that it has set in motion continues".

In the United States, the sector growth growth decelerated to 1.9 per cent in 2016 from 2.8 per cent in 2015 mainly due to slowdown in sectors like real estate, professional and business services.

He said the Survey has also rightly pin-pointed the moderation in growth in industrial output as also services, the key drivers of the economy. The Survey wanted stock limits and movement curbs on farm goods to end and credit off-take from banks to pick up. "Lower rates will also facilitate the twin balance sheet problem resolution process", it said. Also, the removal of checkposts and easing of transport constraints after Goods and Service Tax (GST) implementation can provide some short-term fillip to economic activity.

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