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Optimism on reforms in Indian economy: Economic Survey
11
Aug '17
There is a rekindled optimism on structural reforms in the Indian economy, says Economic Survey 2016-17 Volume 2 tabled in Parliament today. Various factors such as launch of the GST; positive impacts of demonetisation; decision in principle to privatise Air India; and further rationalisation of energy subsidies contribute to this optimism.

The document adds that a growing confidence that macro-economic stability has become entrenched is evident because of a series of government and RBI actions and also because 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. Also Farm loan waivers could reduce aggregate demand by as much as 0.7 per cent of GDP, imparting a significant deflationary shock to an economy. 

As regards Outlook for Growth 2017-18, 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 & 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 which 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 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 percent.

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.

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 which more than outweighed the decline in net invisibles. 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 (US$ 130.1 billion) in the previous year. (RKS)

Fibre2Fashion News Desk – India


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