Achieving GDP growth of 7.5% hard in 2017-18: Government

Achieving GDP growth of 7.5% hard in 2017-18: Government

As per the Economic Survey Part-2 (the first one was tabled in the Parliament in February), several factors including the appreciation of rupee and farm loan waivers besides transitionary challenges emerging from the Goods and Services Tax (GST) implementation are now weighing on the economy.

It pointed out that measures taken by the government have resulted in FDI equity inflow of 43.4 billion Dollars in 2016-17, which is not only an increase of 8 per cent over the previous year, but also the highest ever.

Sunil Kumar Sinha, Principal Economist, India Ratings and Research said: "Survey correctly cautions about the series of deflationary impulses weighing on the economy due to looming twin balance sheet challenge, declining profitability in the sectors such as power or telecommunication sectors, the launch of the GST and demonetisation". He also said that farmer loans are going to have a deflationary, not inflationary effect if states' borrowing limit is not raised.

Chief Economic Advisor Arvind Subramanian who is the force behind the Survey, while trying to project a realist picture through the the Survey said deflationary challenges like lower farm revenues, decline in non-cereal food prices, farm loan waivers, fiscal pruning, and declining profitability in the power and telecommunication sectors - can be hard to overcome.

The government's decision to demonetise Rs 500 and Rs 1,000 notes on November 8 has led to a possible 5.4 lakhs additional taxpayers into the system, Chief Economic Advisor Arvind (CEA) Subramanian said today. While highlighting the stress areas, the economic report card said that sound macro-economic stability, low inflation and reduction in cash holding in the economy post demonetisation are the positive features of the economy. The growth of this sector has moderated to 7.7 per cent in 2016-17 compared to 9.7 per cent achieved in the previous year, it added.

The survey has also pointed out that during 2016-17, freight earnings at Rs 1, 04,339 crore, registered a negative growth of 4.5% over 2015-16.

"More research is needed to disentangle all the rich and complex interactions between demonetisation and its impact on the informal sector", the survey said.

"Our reading of the Economic Survey confirms that there is a need to substantially cut down the policy rates by the RBI and ensure its full transmission by the banks in the form of lower lending rates for consumption and investment activities".

In the U.S., 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.

"A cut in interest rates would spur demand, push up capacity utilisation rates and help reduce pressure on the corporate balance sheets thereby enabling them to plan for fresh investments".

"Cyclical conditions suggest that the policy rate should actually be below. the neutral rate".

Industry bodies CII, FICCI and Assocham also hailed steps taken by the government to resolve the "twin balance sheet" problem.