India says economy could slow down

Representative Image

The Economic Survey expects fiscal deficit to decline to 3.2% of GDP in FY18 compared with 3.5% in FY17.

In a first of its kind mid-year economic survey, the government highlighted that achieving the upper-end of 6.75-7.5 percent growth will be hard in 2017-18, putting to rest earlier projections that cited a growth rate of 6.75-7.5 percent in the current fiscal.

The Survey said that, as on the end of the last fiscal on March 31, currency in circulation contracted by 19.7 per cent whereas reserve money contracted by 12.9 per cent.

Drafted by Chief Economic Advisor Arvind Subramanian, the survey was tabled in the Parliament by Finance Minister Arun Jaitley in the Lok Sabha on the last day of the monsoon session.

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

The November demonetisation took a toll on the Indian economy with the Gross Domestic Product (GDP) during the fourth quarter, ending March this year, falling sharply to 6.1 per cent from seven per cent in the previous quarter while growth for entire 2016-17 also declined correspondingly. "These include stressed farm revenues, as non-cereal food prices have declined; farm loan waivers and the fiscal tightening they entail; and declining profitability in the power and telecommunication sectors, further exacerbating the TBS (twin balance-sheet) problem", the Survey said. "The conclusion is inescapable that the scope for monetary easing is considerable", said Subramanian. Retail inflation cooled to 1.54 percent, its lowest level in more than five years.

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.

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Stating that there are early signs of tax base expanding under GST and nominal GDP growth has accelerated after demonetisation, the CEA said in a press conference later "Demonetisation will continue to pay dividends over time".

In its mid-year economic survey, the finance ministry said "tighter" monetary policy meant real interest rates in India were substantially higher than in comparable emerging economies, further clouding the economic outlook.

There are deflationary impulses hovering on the economy.

The survey further said India's share in worldwide tourist arrivals (ITA) is a paltry 1.1 per cent with a rank of 24 compared to the 7.1 per cent of France which ranks 1st in 2015.

The Survey noted that the House rent allowance could push CPI by 40-100 bps where as the loan growth of Private banks would be more robust than that of PSU banks.

"Telecom sector has experienced "renewables shock" in the form of a new entrant after launching of services by the new entrant in September 2016", it said.

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