By TN Ashok
It sounds almost like a midyear review of the economic scenario of the country. The 2nd part of the Economic Survey released at the end of the monsoon session of parliament that followed the budget session ( part one was released before FY 2017-18 budget) by the Finance Minister Arun Jaitley predicts that a 7 to 8% GDP growth in fiscal 2017-18 is quite reasonable to assume given the global economic scenario.
Highlighting uncertain fiscal outlook for the current fiscal year, Economic Survey Part-2 tabled Friday in Parliament, said attaining 6.75-7.5 per cent GDP growth projected previously will be difficult due to appreciation of rupee, farm loan waivers and transitionary challenges from implementing GST.
Authored by Chief Economic Advisor Arvind Subramanian, the Survey said deflationary impulses — stressed farm revenues, decline in non-cereal food prices, farm loan waivers, fiscal tightening and declining profitability in the power and telecommunication sectors — are heavily weighing on the economy.
“Economy is yet to gather its full momentum and still away from its potential,” Survey said.
Survey also said inflation is expected to remain below the Reserve Bank of India’s 4% target through to the end of the fiscal year and described scope for monetary easing as “considerable”. “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,” it said.
It further said a number of indicators — GDP, IIP, credit off take, 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.
Authored by Dr Arvind Subramaniam, the Chief Economic Advisor to the government, the survey says that reforms such as privationsaton and disinvestment of Air India, creation of aviation hubs, and reconsidering th 0/20 rule re some suggestions to improve Indian airlines share in the international market. Railways could go for more non fare source along with station redevelopment and commercially exploiting vacant buildings at the station, monetizing land along tracks by leasing out to promote horticulture and tree lantation and take recourse to advertisement and parcel earnings.
It further said a number of indicators — GDP, IIP, credit offtake, 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. Sources point to key points highlighted in the Economic Survey:
1. Real GDP growth at upper end of 6.75% to 7.5% projected in February is going tyo be difficult to achieve.
2. Fiscal deficit is expected to decline to 3.2% of GDP in FY2018 compared with 3.5% in FY2017.
3. CPI inflation by March’s likely to remain below 4%. There is considerable scope for monetary policy easing. Annual inflation averaged 5.9% in 2014-15 and has since declined to 4.5% in FY 2017. More dramatic developments during 2016-17- saw inflation declining sharply from 6.1% in July 2016 to 1.5% in June 2017.
4: Structural reform agenda include implementing GST, Air India privatisation.
5. Early signs of tax base expanding under GST. Nominal GDP growth accelerated post demonetisation. Demonetisation may continue to pay dividends over time. 5.4 lakh New Tax Payers Post-Demonetisation, demonetization’s impact on the informal economy increased demand for social insurance, particularly in less developed states.
6. State farm loan waivers could touch Rs 2.7 lakh crore. Farm loan waivers could cut economic demand up to 0.7% of GDP and likely to give deflationary shock ..
7. Deflationary impulses weighing on economy, inflation to undershoot. Downside risks to FY18 GDP forecast of 6.75-7.5%.
8. Geopolitics not as big a risk for oil prices as before.
9. House rent allowance may push CPI by 40-100 bps.
10. Private banks’ loan growth more robust than that of PSU banks.
11. Telecom sector has experienced “renewables shock” in the form of a new entrant. After launching of services by the new entrant in September 2016, the average revenue per user for the industry has plunged 22% vis-a-vis the long term (December 2009-June 2016) ARPU, and by about 32 per cent since September 2016.
12. Real economy grew 7.1 per cent in 2016-17 compared with 8 per cent the previous year. This performance was higher than the range predicted in the Economic Survey in ..
• During the last few years the non-major ports are gaining more share of cargo handling compared to major ports. It is required to develop non-major port and also enhance their efficiency and operational capacity, survey said.
Agriculture and Food Management• To address production risks, the share of irrigated area should be expanded by increasing the coverage of water saving irrigation systems like micro irrigation systems.To increase productivity of crops, standards should be set and enforced for better quality, pest and disease resistant seeds. Trade and domestic policy changes should be announced well before sowing and should stay till arrivals and procurement is over.
• The education policies need to be designed with focus on learning outcomes and remedial education with interventions which work and maximize the efficiency of expenditure. There is need for bio-metric attendance of school staff, independent setting of examination papers, neutral examination and for DBT for schools. There is need to adopt outcome measures for the education and skilling activities to ensure improvement in delivery of schemes/ programmes.
• In order to make the labour market system dynamic and efficient, the government has taken several reforms/initiatives, both legislative as well as technological such as notification of ‘Ease of Compliance to maintain Registers under various Laws Rules, 2017’ and introduction of e-Biz Portal. These registers/forms can also be maintained in a digitized form.
Government has been imparting short term skill training through Pradhan Mantri Kaushal Vikas Yojana (PMKVY) and long term training through Industrial Training Institutes (ITIs). Model Skill Centers are being set up in every district of the country under Pradhan Mantri Kaushal Kendra Scheme. The emphasis is on enhancing the quality of skill training programmes and making a competency-based framework with giving individuals an option to progress through education, training, prior learning and experiences.
• There has to be concerted efforts by the Central and State governments to reform the health sector, by addressing quality issues, standardising rates for diagnostic tests, generating awareness about alternative health systems and introduction of punitive measures like fines on hospitals and private health providers for false claims through surgery, medicines etc. For more equitable access to health services, government should provide health benefits and risk cover to poorer sections of the society
• Addressing the social security of large number of vulnerable workers in the informal economy should be prioritized by the Government along with ensuring the safety and security of women to raise their participation in economic activities.