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What it says about growth, demonetisation and more

By Reuters

  • 31 Jan 2017
What it says about growth, demonetisation and more
Reuters | Credit: Reuters

India's economy should grow between 6.75% and 7.5% in the financial year beginning on April 1, a government report estimated on Tuesday.

The Economic Survey, which sets the scene for Finance Minister Arun Jaitley's fourth annual budget on Wednesday, forecast that Asia's third-largest economy should steady after a hit from the government's shock decision in November to scrap most cash in circulation.

The survey was prepared by the finance ministry's chief economic adviser Arvind Subramanian.

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Here are the highlights of the report:

GROWTH

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  • 2017/18 GDP growth seen between 6.75% and 7.5% year on year
  • GDP growth rate at constant market prices for the current year 2016/17 is placed at 7.1%
  • The federal statistics office's estimate of 7.1% growth for 2016/17 likely to be revised downwards
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  • Service sector is estimated to grow at 8.9% in 2016/17
  • Industrial growth rate expected to moderate to 5.2% in 2016/17 from 7.4% in 2015/16
  • The agriculture sector is estimated to grow at 4.1% in 2016/17 as opposed to 1.2% in 2015/16
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    FISCAL DEFICIT

    • Implementation of wage hike, muted tax receipts to put pressure on fiscal deficit in 2017/18
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  • Need for fiscal prudence for both centre and states for fiscal health of the economy
  • Fiscal windfall from low oil prices to disappear in 2017/18 - TV channels
  • INFLATION

    • The average consumer price index (CPI) inflation rate declined to 4.9% in 2015/16 from 5.9% in 2014/15
  • CPI-based core inflation has remained sticky in the current fiscal year averaging around 5%
  • Oil prices, seen rising by one-sixth in 2017/18 over 2016/17 prices, could dampen India's economic growth
  • DEMONETISATION

    • Remonetisation will ensure that the cash squeeze is eliminated by April 2017
  • Supply of currency should follow actual demand and not be dictated by official estimate of desirable demand
  • Government windfall arising from unreturned notes should be deployed towards capital spending
  • MONETARY POLICY

    • Sharp rise in prices in 2017/18 may cap monetary easing headroom - ET NOW on Twitter
  • Market interest rates seen lower in 2017/18 due to demonetisation - ET NOW on Twitter
  • GOVERNMENT DEBT

    • Government debt to GDP ratio in 2016 seen at 68.5% down from 69.1% in 2015

    BANKING

    • Suggests setting up public sector asset rehabilitation agency to take charge of large bad loans in banks
  • Central agency with government backing could overcome coordination and political issues on bad loans
  • TAXATION

    • Income tax rates and real estate stamp duties could be reduced
  • Timetable for reducing corporate tax rate could be accelerated
  • UNIVERSAL BASIC INCOME

    • Universal Basic Income (UBI) proposal a powerful idea, but not ready for implementation
  • UBI an alternative to plethora of state subsidies for poverty alleviation; UBI would cost between 4 and 5% of GDP
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