Economic survey warns of uncertain fiscal outlook, challenges

Flagging uncertain fiscal outlook for the current fiscal, the second part of Economic Survey released on Friday said achieving higher end of the 6.75-7.5 per cent GDP growth estimated earlier will be difficult and called for more interest rate cuts to boost the economy.

Its list of challenges included appreciation of the rupee, farm loan waivers, rising stress on balance sheets in power as well as telecom and transition issues arising from implementing the Goods and Services Tax (GST).

The Survey warned of fiscal slippages as “a series of deflationary impulses are weighing on an economy yet to gather its full momentum”.

Authored by Chief Economic Adviser Arvind Subramanian and tabled in Parliament, the Survey said farm loan waiver could cut economy demand by up to 0.7 per cent of GDP.

It saw farm loan waivers by states touching Rs 2.7 lakh crore.

It said inflation is expected to remain below the Reserve Bank of India’s medium-term target of 4 per cent, through the fiscal deficit will be 3.2 per cent of GDP in 2017-18 as compared to 3.5 per cent last fiscal.

The mid-year survey of the economy said there was “considerable” scope for further easing in monetary policy as the repo rate was 25-75 basis above the neutral rate.

RBI had last week cut its main policy rate by 25 basis points to 6 per cent, the lowest since November 2010.

“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.

Citing deflationary impulses, the Survey stressed that farm revenues, decline in non-cereal food prices, farm loan waivers, fiscal tightening and declining profitability in the power and telecom sectors are weighing on the economy.

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

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.


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