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1 1August 2017
India
faces the risk of deflationary impulses owing to stressed agricultural
revenues, bad loans, farm loan waivers and the fiscal tightening they would
entail, that could push inflation below the Reserve Bank of India's (RBI)
targeted 4 per cent by March 2018, according to the Economic Survey 2016-17
Volume-2. The Total Investment & Insurance
Solutions
Tabled
in the Lok Sabha on Friday, 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. The Total
Investment & Insurance Solutions
The
document says that the fact that current inflation is running well below the 4
per cent target suggests that inflation by March, 2018 is likely to be below
the RBI's medium term target of 4 per cent. The Total Investment & Insurance Solutions
However,
the Survey cautions that anxiety reigns because a series of deflationary
impulses are weighing on the economy, which is yet to gather its full momentum
and is still away from its potential. The Total Investment & Insurance Solutions
"These
include: stressed farm revenues, as non-cereal food prices have declined, farm
loan waivers and the fiscal tightening they will entail and declining
profitability in the power and telecommunication sectors, further exacerbating
the twin-balance sheet (TBS) problem," the document said. The Total Investment & Insurance Solutions
It
also stated that farm loan waivers could reduce aggregate demand by as much as
0.7 per cent of GDP, imparting a significant deflationary shock to the Indian
economy.
The
document also adds that a growing confidence that 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.
Examining
if India is undergoing a structural shift in the inflationary process toward
low inflation, the Survey notes that the oil market is very different today
than a few years ago in a way that imparts a downward bias to oil prices, or at
least has capped the upside risks to oil prices. The Total Investment & Insurance Solutions
Lauding
the Centre's demonetisation move, the document said that there was a spurt in
new taxpayers and reported income after the note ban and a total of 5.4 lakh
new taxpayers got added post it. The Total
Investment & Insurance Solutions
"Demonetisation's
impact on the informal economy increased demand for social insurance,
particularly in less developed states," it said. The Total Investment & Insurance Solutions
It
also adds that sustaining current growth trajectory will require action on more
normal drivers of growth such as investment and exports and cleaning up of
balance sheets to facilitate credit growth. The Total Investment & Insurance Solutions
The
ratio of stressed companies in the power sector has been steadily rising this
year, reaching 70 per cent, with an associated vulnerable debt of over Rs. 3.6
lakh crore. The Total Investment & Insurance
Solutions
The
telecommunications 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, the average revenue per user (ARPU) for the industry
on aggregate has come down by 22 per cent vis-a-vis the long term (December
2009-June 2016) ARPU, and by about 32 percent since September 2016. The Total Investment & Insurance Solutions
As
regards outlook for growth 2017-18, the Survey (Volume I) had forecast a range
for real GDP growth of 6.75 per cent to 7.5 per cent for FY 2018. For outlook
for prices and inflation 2017-18, the Survey notes 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.
The
Survey said that the capital flows and exchange rate 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. The Total Investment & Insurance Solutions
As
regards review of economic developments 2016-17, the Survey notes that real economy
grew by 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
(Volume I) in February.
"This
growth suggested that the economy was relatively resilient to the large
liquidity shock of demonetisation which reduced cash in circulation by 22.6 per
cent in the second half of 2016-17," it said. The Total Investment & Insurance Solutions
The
current account deficit narrowed in 2016-17 to 0.7 per cent of GDP, down from
1.1 per cent of GDP the previous year, led by the sharp contraction in trade
deficit.
Export
growth turned positive after a gap of two years and imports contracted
marginally, so that India's trade deficit narrowed to 5.0 per cent of GDP in FY
2017 as compared to 6.2 per cent in the previous year.The Total Investment & Insurance Solutions
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