Janjivan Bureau / NEW DELHI : The economic survey 2017, presented to parliament Today went on to say that though the plan has been to reduce the fiscal deficit from an estimated 3.2 % this year to 3.0 % in 2018/19, a pause in the move toward a lower deficit could be merited in order to give the economy momentum.
“Reflecting largely fiscal developments at the center, a pause in general government fiscal consolidation relative to 2016-17 cannot be ruled out,” the survey, written by the finance ministry’s chief economic adviser Arvind Subramanian, said.
The survey, an annual report the health of the economy, was released ahead of the government’s budget statement, due to be presented by Finance Minister Arun Jaitley on Thursday.
“A series of major reforms undertaken over the past year will allow real GDP growth to reach 6.75 percent this fiscal (year) and will rise to 7.0 to 7.5 percent in 2018/19, thereby reinstating India as the world’s fastest growing major economy,” the survey said.
A senior official at China’s National Development and Reform Commission (NDRC) wrote in the Beijing daily on Monday that China’s economic growth was likely to slow to 6.5-6.8 percent this year.
Fueled by stronger private investment and exports, the recovery forecast for India’s growth rate comes after the country posted its slowest growth in three years in 2017/18.
The slowdown was partly a consequence of the chaotic rollout of a nationwide goods and service tax (GST) last year and a shock move to take high value currency notes out of circulation in late 2016.
The budget is expected to step up funding of rural development programs and help small businesses as Prime Minister Narendra Modi’s nationalist government heads into a national election in 2019.
“GDP growth might be at the lower end of the range, but broadly the estimates are in line with our expectations,” said Suvodeep Rakshit, senior economist at Kotak Institutional Equities in Mumbai.
“The government will likely focus on rural and urban infrastructure, housing, agriculture as well as bit on the capital expenditure front with a judicious mix of budgetary and extra budgetary expenditure,” Rakshit added.
The survey cautioned that persistently high oil prices remained a key risk for a country that relies on imports for much of its fuel needs.
The benchmark 10-year bond IN067927G=CC fell, with the yield up 5 basis points at 7.53 percent after the report indicated fiscal deficit targets could be loosened, albeit modestly.
The rupee INR=D2 was slightly stronger, trading at 63.51 from its 63.5475 close.
But, India’s share markets held onto gains after the release of the survey, with the broader NSE share index .NSEI up 0.7 percent from the previous close.
Shedding the impact of GST and demonetisation, India’s economy is “picking up quite nicely”, and will expand by 7-7.5 per cent in 2018-19 to again become the world’s fastest growing major economy, according to the Economic Survey released on Monday.
However, it could face challenges from rising oil prices and a sharp correction in the elevated stock prices, according to the Survey, an annual account of the state of economy prepared by the Chief Economic Adviser, independent of the government.
Released just two-days before the BJP government presents its fifth and final full-year Budget, the Survey did not rule out a pause in fiscal consolidation plan ahead of the 2019 General Election.
The Economic Survey 2017-18 was presented in Parliament by Finance Minister Arun Jaitley.
The economy “seems to be picking up quite nicely and robustly” as temporary impact of demonetisation and GST has been decimated, CEA Arvind Subramanian later told reporters.
The Survey has pegged the GDP growth for the current fiscal at 6.75 per cent and said that exports as well as private investments are set to rebound in the coming year. The growth rate is higher than the recent CSO estimate of 6.5 per cent.
The Gross Domestic Product (GDP) growth was 7.1 per cent in 2016-17 and 8 per cent in the preceding year. It was 7.5 per cent in 2014-15.
The growth in the current fiscal has been marred by the rollout of a nationwide Goods and Services Tax (GST) and the after effects of demonetisation of high value currency notes in November 2016.
The good news for the economy comes just before the country heads toward several assembly elections this year and general elections scheduled before May 2019. More importantly, it points to the chaotic GST implementation finally stabilising and the waning of the after-effects of demonetisation.
Deloitte India’s Lead Economist Anis Chakravarty said the Survey provides a holistic picture of the achievements of the last one year and challenges for the next year.
“It shows there are signs of upturn that are visible right now and can potentially strengthen over the next few months and are likely to be aided by exports,” he said.
Subramanian said the growth would be higher than 7.5 per cent if exports pick up, but he listed oil prices and a correction in elevated share prices as downside risks.
The average price of the basket of crude India imports rose by around 14 per cent in the current fiscal and is projected to further rise by 10-15 per cent in 2018-19, the Survey said.
GDP may be impacted by 0.2-0.3 per cent, inflation will be higher by 0.2-0.3 per cent and current account deficit will widen if oil prices were to rise by USD 10 per barrel, Subramanian said.
“Against emerging macroeconomic concerns, policy vigilance will be necessary in the coming year, especially if high international oil prices persist or elevated stock prices correct sharply, provoking a ‘sudden stall’ in capital flows,” the Survey has warned.
However, it said that with world growth likely to witness moderate improvement in 2018, expectation of greater stability in GST, likely recovery in investment levels, and ongoing structural reforms should support higher growth. “On balance, country’s economic performance should witness an improvement in 2018-19.”
For the next year, it prescribed: “Stabilising the GST, completing the twin balance sheet actions, privatising Air India, and staving off threats to macro-economic stability.
“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; Agriculture – raising farm productivity while strengthening agricultural resilience.”
India, it said, must continue improving the climate for rapid economic growth on the strength of the only two truly sustainable engines – private investment and exports.
It warned that economic management will be challenging in the coming year due to overall economic and political background.
“Setting overly ambitious targets for consolidation—especially in a pre-election year—based on optimistic forecasts that carry a high risk of not being realised will not garner credibility,” said the Survey.
Press Conference By Chief Economic Advisor, Dr. Arvind Subramanian on Economic Survey 2017-18
To further make it easier for doing business in India, it called for addressing pendency, delays and backlogs in the appellate and judicial arenas.
Gross Value Added (GVA), it said, is expected to grow by 6.1 per cent in 2017-18 as compared to 6.6 per cent in 2016- 17.
Highlights of the Economic Survey Report:
GROWTH
* 2018/19 Growth seen at 7 pct to 7.5 pct y/y
* 2017/18 GDP growth seen at 6.75 pct y/y
* 2017/18 industry growth seen at 4.4 pct
* 2017/18 farm sector growth seen at 2.1 pct
* Economic management will be challenging in the coming year
* Biggest source of upside to growth to be from exports
* Cyclical conditions may lead to lower tax and non-tax revenues in 2017/18
* Private investment poised to rebound
FISCAL DEFICIT
* Target for fiscal consolidation specially in a pre-election year can carry a high risk of credibility
* Marked efforts will be required to meet budgeted revenue and fiscal deficit targets for full year
* Current account deficit for 2017/18 expected to average 1.5-2 pct of GDP
* Pause in general govt fiscal consolidation cannot be ruled out in 2017/18
* Suggests modest (fiscal) consolidation that signals a return to the path of gradual but steady deficit reductions
* About 400 bln rupees worth of additional borrowing does not affect underlying deficit – economic adviser
INFLATION, POLICY RATES
* Persistently high oil prices remain a key risk, to affect inflation, current account, fiscal position and growth
* If inflation doesn’t deviate from current levels policy rates can be expected to remain stable
* Average CPI inflation seen at 3.7 pct in 2017/18
AGRICULTURE
* Warns climate change could trim agricultural incomes in India by 15 percent to 25 percent with unirrigated lands being harder hit by rising temperatures and declines in rainfall
