Bharat SainiLast Updated on September 2, 2017 by Bharat Saini
Economic Survey 2016-17: Volume-2, for the first time 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, tabled in Parliament by Finance Minister Arun Jaitley on Friday 11 August 2017 rekindles optimism on ongoing structural reforms driven by:
- Launch of GST leading to expansion of the tax base,
- Positive impacts of demonetisation, such as spurt in new taxpayers and reported income after the note ban and a total of 5.4 lakh new taxpayers got added post it.
- Exuberance in financial market,
- Scope for monetary easing,
- Exports recovery,
- Rationalization of energy subsidies,
- Decision to privatize Air India and
- Effective handling of the twin balance sheet challenge by the Centre and the RBI to facilitate credit growth.
- Macro-economic stability has become entrenched is evident because of a series of government and RBI actions and because of structural changes in the oil market have reduced the risk of sustained price increases.
However according to the Survey India faces the risk of deflationary impulses weighing on the economy, which is yet to gather its full momentum and is still away from its potential, due to the fact that current inflation is running well below the 4 per cent target and suggests that inflation by March, 2018 is likely to be below the RBI’s medium term target of 4 per cent; and survey accepts that achieving the high end of the 6.75-7.5 percent growth projected previously will be difficult due to factors like:
- Stressed farm revenues, as non-cereal food prices have declined and
- Adverse effects of farm loan waivers that could reduce aggregate demand by as much as 0.7 per cent of GDP and fiscal tightening they will entail
- Power sector has witnessed that the ratio of stressed companies in the sector has been steadily rising this year, reaching 70 per cent, with an associated vulnerable debt of over Rs. 3.6 lakh crore
- Telecommunication sector has experienced its own version of the “renewables shock” in the form of a new entrant that has dramatically reduced prices for, and increased access to data, thereby benefiting – at least in the short run – consumers, after launching of services by the new entrant in September 2016. Profitability of the sector has declined.
- Further exacerbating the twin-balance sheet problem
- Appreciation of rupee
- Transitional challenges from implementing GST.
