Published: Fri, August 11, 2017
Money | By Armando Alvarado

Achieving 7.5% GDP growth in FY '18 hard: Economic Survey 2017

Achieving 7.5% GDP growth in FY '18 hard: Economic Survey 2017

It highlighted decline in farm revenues and non-cereal food prices, farm loan waivers, fiscal consolidation and declining profitability in the power and telecommunication sectors as the factors generating deflationary tendencies.

The Survey was critical of the state farm loan waivers warning that could touch Rs 2.7 lakh crore.

He explained that while the Centre would not relax on the fiscal borrowing limit of the states, which, in order to make the farm loan waivers, would then be forced to either make cuts to expenditure or raise taxes, both of which would have a deflationary impact.

On the expected lines, the Survey stated fiscal deficit expected to decline to 3.2 per cent of GDP in FY2018 compared with 3.5 per cent in FY2017.

In February, the survey had forecast a range for real GDP growth of 6.75 percent to 7.5 percent for FY 2018. "Also Farm loan waivers could reduce aggregate demand by as much as 0.7% of GDP, imparting a significant deflationary shock to an economy", the report cautioned.

The second volume of the Economic Survey 2016-17, authored by Prime Minister Modi's chief economic adviser (CEA), Arvind Subramanian, released on Friday, cautioned that achieving the upper end of projections for economic growth at 6.75-7.5 percent for fiscal 2018 may be hard.

Disinflationary pressures allowed the Reserve Bank of India (RBI) last week to cut its main policy rate - the first easing by an Asian central bank this year - by 25 basis points to 6 percent, the lowest since November 2010.

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"Economy is yet to gather its full momentum and still away from its potential", it said.

According to the Survey, CPI inflation declined to 4.5 per cent during 2016-17, with a broad-based price decline in all major commodity groups.

The Survey said the fact that current inflation is running well below the 4 per cent target suggests that inflation by March 2018 is likely to come in below the RBIs medium term goal of 4 per cent.

In the USA, the sector growth growth decelerated to 1.9 per cent in 2016 from 2.8 per cent in 2015 mainly due to slowdown in sectors like real estate, professional and business services.

The Survey notices rekindled optimism on structural reforms in the Indian economy.

The government and the RBI have taken "prominent steps" to address the twin balance sheet challenge which has boosted market confidence in the short run, it said. Also, the removal of checkposts and easing of transport constraints after Goods and Service Tax (GST) implementation can provide some short-term fillip to economic activity.

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