Economic Survey: India to grow at 6.75-7.5% in 2017-18
Lower inflation, moderate CAD, stable rupee to mark micro-economic environs
Hardnews Bureau Delhi
The Indian Economy has sustained a macro-economic environment of relatively lower inflation, fiscal discipline and moderate current account deficit (CAD) coupled with broadly stable rupee-dollar exchange rate, according to the Economic Survey 2016-17 presented in Parliament today by Finance Minister Arun Jaitley.
Such sustenance is despite continuing global sluggishness, the survey said. As per the advance estimates released by the Central Statistics Office, the growth rate of GDP at constant market prices for the year 2016-17 is placed at 7.1 per cent, as against 7.6 per cent in 2015-16. The estimate is based mainly on the first seven to eight months of the financial year. Government final consumption expenditure is the major driver of GDP growth in the current year.
Fixed investment (gross fixed capital formation) to GDP ratio (at current prices) is estimated to be 26.6 per cent in 2016-17, vis-à-vis 29.3 per cent in 2015-16. For 2017-18, it is expected that the growth would return to normal as currency notes are replenished. The government said that the adverse impact of demonetisation on GDP growth will be transitional. Jaitley stated that once the cash supply was replenished, which is likely to be achieved by end of March, the economy would revert to the normal.
On balance, there is a likelihood that the GDP may go back to 6.75 per cent to 7.5 per cent in 2017-18.
Indirect taxes grew by 26.9 per cent during April-November 2016. The strong growth in revenue expenditure during April-November 2016 was boosted mainly by a 23.2 per cent increase in salaries due to the implementation of the Seventh Pay Commission and a 39.5 per cent increase in the grants for creation of capital assets. The headline inflation as measured by Consumer Price Index (CPI) remained under control for the third successive financial year. The average CPI inflation declined to 4.9 per cent in 2015-16 from 5.9 per cent in 2014-15 and stood at 4.8 per cent during April-December 2015.
Calling the Goods and Service Tax (GST) a bold new experiment in the governance of India’s cooperative federalism, the survey stated that GST will create a common Indian market, improve tax compliance and governance, and boost investment and growth.
The survey also noted that against the backdrop of robust macro-economic stability, the year was marked by two major domestic policy developments: the passage of the Constitutional Amendment which paved the way for implementing the transformational Goods and Services Tax (GST), and the decision to demonetise the two highest denomination notes.
According to the report, although demonetisation had short-term costs, it will have long-term benefits. Follow-up actions to minimise the costs and maximise the benefits include fast, demand-driven remonetisation, further tax reforms, including bringing land and real estate into the GST, reducing tax rates and stamp duties, and acting to allay anxieties about an over-zealous tax administration.
These actions would allow growth to return to trend in 2017-18, possibly making the country the fastest-growing major economy in the world, following a temporary dip in 2016-17.
The survey stated that in the short-run, world GDP growth is expected to increase because of a fiscal stimulus in the United States but there are considerable risks, including higher oil prices, eruption of trade tensions from sharp currency movements, especially involving the Chinese Yuan, and from geo-political factors. Another serious medium-term risk is an upsurge in protectionism that could affect India’s exports.
The survey said that the year also saw a number of legislative accomplishments in the country. In addition to the GST, the government overhauled bankruptcy laws so that the “exit” problem that pervades the Indian economy—with deleterious consequences highlighted in last year’s survey—can be addressed effectively and expeditiously.
It said that the government also codified the institutional arrangements on monetary policy with the Reserve Bank of India (RBI) to consolidate the gains from macroeconomic stability by ensuring that inflation control will be less susceptible to the whims of individuals and the caprice of governments. It also solidified the legal basis for Aadhaar to realise the long-term gains from the JAM trifecta (Jan Dhan-Aadhaar-Mobile).
(With inputs from UNI)