Achieving high end of 6.75-7.5% growth difficult: Survey

12/08/2017

New Delhi: Achieving the high end of the 6.75-7.5 percent growth projected previously will be difficult due to appreciation of rupee, farm loan waivers and transitionary challenges from implementing GST, the Economic Survey said on Friday.
Tabled in the Lok Sabha today, the Survey, however, notices a rekindled optimism on structural reforms in Indian economy.
Various factors such as launch of the Goods and Services Tax (GST), positive impacts of demonetisation, decision in principle to privatise Air India, further rationalisation of energy subsidies and actions to address the twin-balance sheet (TBS) challenge contribute to this optimism, it noted.
For the first time today, the government presented a second or a mid-year economic survey for the year 2017-18 highlighting the new factors that the economy faces since the last such exercise in February.
The Survey said that the fact that current inflation is running well below the 4 percent target suggests that inflation by March, 2018 is likely to be below the RBI`s medium term target of 4 percent.
The Survey noted the outlook for inflation in the near-term will be determined by a number of proximate factors, including: The outlook for capital flows and exchange rate which in turn will be influenced by the outlook and policy in advanced economies, especially the US;
• the recent nominal exchange rate appreciation;
• the monsoon;
• the introduction of the GST;
• the 7th Pay Commission awards;
• likely farm loan waivers; and
• the output gap
It also said that the scope for monetary easing was considerable and this, coupled with reform to address the twin balance sheet challenge, will help the economy achieve its full potential quicker.
"Cyclical conditions suggest that the policy rate should actually be below... The neutral rate. The conclusion is inescapable that the scope for monetary easing is considerable," he said.
The Economic Survey said that a number of indicators-- GDP, IIP, credit, investment and capacity utilisation, point to a deceleration in real activity since first quarter of 2016-17 and a further deceleration since the third quarter.
The first volume of the Survey in February had predicted the range of GDP growth of between 6.75-7.5 percent, factoring in more buoyant exports, a post-demonetisation catch-up in consumption and a relaxation in monetary conditions consequent upon demonetisation.
Since then all the new factors-- real exchange rate appreciation, farm loan waivers, increasing stress to balance sheet in power, telecom, agricultural stress and transitional challenges from implementing the GST -- impart a deflationary bias to activity, the Survey said.
Since February 2017, the rupee has appreciated by about 1.5 percent.
It said the government and the RBI have taken "prominent steps" to address the twin balance sheet challenge which has boosted market confidence in the short run. Also, the removal of checkposts and easing of transport constraints after Goods and Service Tax (GST) implementation can provide some short- term fillip to economic activity.
The Survey said that the balance of risk to achieving the 6.75-7.5 percent growth has shifted to the downside. "The balance of probabilities has changed accordingly, with outcomes closer to the upper end having much less weight tha previously," it added.

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