New Delhi: The Economic Survey 2017-18 on Monday predicated that economic growth will accelerate in 2018-19 to up to 7.5 per cent, “re-instating India as the world’s fastest growing major economy.” This pick-up in the growth will be led by buoyancy in exports, a forecast predicted on the global economy accelerating and rebound in the private investment at the domestic front.
“A series of major reforms undertaken over the past year will allow real GDP growth to reach 6.75 per cent this fiscal (year) and will rise to 7.0 to 7.5 per cent in 2018-19, thereby reinstating India as the world’s fastest growing major economy,” said the Survey tabled in Parliament by finance minister Arun Jaitley.
The Survey, prepared by the finance ministry’s Chief Economic Adviser (CEA) Arvind Subramanian, sets the stage for annual Budget on February 1.
The Economic Survey said that Central Statistics Office (CSO) erred by pegging India’s growth at a four-year low of 6.5 per cent in 2017-18 (CSO data is used as the main input while compiling various financial targets in Union Budget). “This estimate had not fully factored in the latest developments in the third quarter, especially the greater-than-CSO forecast exports and government contributions to demand,” it said. The Survey said that GDP growth for 2017-18 as a whole is expected to be close to 6.75 per cent.
However, the Survey forecast that economic management will be challenging in the coming year due to persistently high oil prices. “They would affect inflation, the current account, the fiscal position and growth...” it said.
The other risk which can emerge is if the booming stock markets (Sensex touched a new lifetime high of 36,283 on Monday) corrected sharply, provoking a “sudden stall” in capital flows.
It also warned against setting “overly ambitious” fiscal consolidation target in the Budget on Thursday which could compromise economic growth.
The pre-Budget survey suggested following a modest consolidation that credibly signals a return to the path of gradual but steady fiscal deficit reductions.
As per the roadmap, the government aims to contain the fiscal deficit for 2017-18 at 3.2 per cent of the GDP, and further tighten it to 3 per cent in 2018-19.
The Survey said that as far as demonetisation is concerned, the cash-to-GDP ratio has stabilised, suggesting a return to equilibrium.
“The stabilisation also permits estimation of the impact of demonetisation: about Rs 2.8 lakh crore less cash (1.8 per cent of GDP) and about Rs 3.8 lakh crore less high denomination notes (2.5 per cent of GDP),” it said.
The Economic Survey said that recovery is taking hold as reflected by a variety of indicators, including industrial production data, gross capital formation and exports.
However, it added that the twin engines (exports and investment) which propelled the economy’s take-off in the mid-2000s are continuing to run below take-off speed.
The Survey said that the country’s GDP decoupled from the global economy in the first half of 2017-18 and it slowed down due to demonetisation, teething problems with GST implementation and high interest rates. It also claimed a 50 per cent increase in indirect taxpayer base post GST, adding that the note ban led to wider taxpayers’ base and more household savings.
It said that many of the new tax filers after demonetisation and GST reform were in the slab of Rs 2.5 lakh annual income who don’t need to pay any tax. But, the Survey was hopeful that as income growth over time pushes many of the new tax filers over the threshold, revenue dividends should increase robustly.
However, it said that due to various measures taken by the government to curb black money generation, there was Rs 65,000 to Rs 90,000 crore increase in income tax collection in the past two years.
The Survey said that while there are significant social and economic benefits to attacking corruption and weak governance, addressing these pathologies entails challenges.
“In the case of the GST and demonetisation, informal cash-intensive sectors of the economy were impacted,” it said. The Survey said that in the case of spectrum, coal, and renewables, auctions may have led to a winners’ curse, whereby firms overbid for assets, leading to adverse consequences in each of the sectors; but they created transparency and avoided rent seeking with enormous benefits, actual and perceptional.
It warned that climate change could pare back annual agricultural incomes in India by 15 to 25 per cent with unirrigated lands being harder hit by rising temperatures and decline in rainfall. Already there is a stress in the rural areas with farmers complaining that they are not getting right prices for their crops.
The Survey underlined that despite the goal of reviving manufacturing, its share in GDP has improved slightly and its international competitiveness has not made great strides, as reflected in the declining manufacturing export-GDP ratio.
It said that agenda for 2018 should be to privatise Air India, complete recapatilisation of PSU banks and stabilise GST implementation to remove uncertainty for exporters.
The Economic Survey said that over the medium term, three areas of policy focus stand out: employment (finding good jobs for the young and burgeoning workforce, especially for women), education (creating an educated and healthy labour force) and agriculture (raising farm productivity while strengthening agricultural resilience).
