New Delhi: The Economic Survey’s second part, that was tabled by the government in Parliament on Friday, indicated that the country’s economic growth was unlikely to accelerate in the current fiscal and it will be difficult for GDP to touch the higher rate of 7.5 per cent in 2017-18 as projected earlier. This shows the huge challenge before the Narendra Modi government to revive the economy, and particularly before the 2019 general election.
The Survey — the first part of which was laid before Parliament on January 31, a day before the Budget, urged the government to use all policy tools to revive momentum and called for more interest rate cuts by the Reserve Bank. The Survey’s second part, which includes the mid-year review, was tabled by finance minister Arun Jaitley.
The first part of the Economic Survey had projected GDP to grow by 6.75 and 7.5 per cent in the current fiscal. However, now the government says things have changed since then, including appreciation of the Indian rupee, the RBI not cutting interest rates as aggressively as expected, farm loan waiver, increasing stress to balance sheets of companies in power and telecommunications, agricultural stress and certain transitional friction from the implementation of GST.
“In February, the Survey (Volume I) had forecast a range for real GDP growth of 6.75 per cent to 7.5 per cent for FY 2018. The balance of probabilities has changed accordingly, with outcomes closer to the upper end having much less weight than previously,” the Survey said on Friday.
India’s economy had hit a bump in 2016-17, seeing the slowest growth in three years at 7.1 per cent.
Chief economic adviser Arvind Subramanian, author of the Survey, said the Indian economy has seen an across-the-board deceleration in activity and requires policymakers to come up with all possible tools to revive growth. “There are very favourable medium-term developments. The real challenge now is short-term growth and how we need to respond to that. We need to bring all the policy tools we have to revive short-term growth,” said Mr Subramanian. The Survey said the macro-economic challenge will be to counter deflationary impulses through key monetary, fiscal and agricultural policies. It said that the RBI’s policy repo rate was still 25-75 basis points above the neutral rate.
The Survey said farm loan waivers could cut demand in the economy by up to 0.7 per cent of GDP. It said that since February 2017, the rupee had appreciated by about 1.5 per cent in real terms, impacting exports.
On the positive side, the Survey said there was a sense of optimism on structural reforms with the launch of the Goods and Services Tax (GST), the decision in principle to privatise Air India, further rationalisation of energy subsidies and the action taken to address the Twin Balance Sheet (TBS) challenge. The Economic Survey said retail inflation at the end of March 2018 would remain well within the RBI’s medium-term target of four per cent.
