Published: Fri, August 11, 2017
Economy | By Annette Adams

Downside risks to growth, inflation to undershoot : Economic Survey

Downside risks to growth, inflation to undershoot : Economic Survey

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

"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.

The second volume of the economic survey will have extensive comments on demonetisation, farm loan waivers, macroeconomic data and interest rate cuts by the RBI and Monetary Policy Committee. Also, the removal of checkposts and easing of transport constraints after Goods and Service Tax (GST) implementation can provide some shortterm fillip to economic activity.

The oil market is very different today than it was a few years ago, which means that the risk of oil prices rising beyond a point has been contained, Volume 2 of the Economic Survey 2016-17, tabled in Parliament on Friday, said.

"The balance of probabilities has changed accordingly, with outcomes closer to the upper end having much less weight tha previously", it added.

Expenditure on education has grown from 2.8 per cent in 2014-15 to 3.2 per cent of the GDP in FY17, while health sector saw it going up up from 1.2 per cent in 2014-15 to 1.5 per cent in the last fiscal, Economic Survey said.

Even as the RBI resumed cutting rates, it warned inflation could accelerate to as high as 4.5 percent in October-December.

Fiscal outlook for 2017-18 is uncertain.

The survey called for a further drop in interest rates - now at 6 percent after a 25 basis points cut last week.

According to the Survey, the structural reform agenda of the government includes implementing GST, Air India privatisation, rationalisation of energy subsidies and addressing twin balance sheet challenge facing banks.

Demonetisation may continue to pay dividends over time. Farm loan waivers could cut economic demand up to 0.7% of GDP and likely to give deflationary shock to the economy.

The Survey wanted stock limits and movement curbs on farm goods to end and credit off-take from banks to pick up.

Credit off-take from banks continued to decelerate.

The Survey noted that the House rent allowance could push CPI by 40-100 bps where as the loan growth of Private banks would be more robust than that of PSU banks.

Geopolitics not as big a risk for oil prices as before.

Enumerating the challenges faced by the IT industry, the Survey noted: "In 2016-17 around 1.7 lakh jobs were created and in Q4 (fourth quarter) of 2016-17 alone, there was a gross hiring of over 50,000 by top 5 companies".

The broad based decline in all commodity groups during 2016-17, the most significant being decline in food.

Net FDI inflows at United States dollars 35.6 billion as opposed to USD 36 billion in 2015-16.

Deterioration in quality learning in primary education, * Targeted enrolment in middle education a challenge.

Citing the example of the USA, it said the "Buy American, Hire American" Presidential executive order called for the collection of data, increased oversight and enforcement actions, and the development of administration plans to reform and curtail the high skill visa programmes.

Several other Bills proposing changes in the H-1B visa regime, as well as a recent memo from the agency that looks at lawful immigration in the United States saying a computer programmer will not be eligible for H-1B visas by default would also have an impact on the Indian IT industry.

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