The second volume of the Economic Survey 2016-17 unveiled on Friday highlighted a “deflationary bias to activity” since its initial version which came out six month ago due to “several new factors” and cut the forecast of real GDP growth in 2017-18 to the lower end of the 6.75-7.5% range formulated earlier.
Since the February edition, the real policy rate had been tighter than anticipated, the survey said, citing it as a reason for the revised growth outlook. There is, it noted, sizeable slack in the economy; for instance, the average capacity utilisation was just 72.7% in the third quarter of last fiscal year.
Even as chief economic adviser Arvind Subramanian spoke of “across-the-board deceleration”, the survey iterated the need for “considerable” monetary easing in order to deleverage corporate balance sheets. While the authors of the survey are patently critical of the Reserve Bank of India for keeping the policy rates at levels that felt higher than warranted, they also rebutted the government’s claims of tax buoyancy and identified new short-term risks to Centre’s fiscal outlook.
These are some of the key points in the survey: Investment spending of the general government — which improved on the back of CPSEs last fiscal — is likely to decline relative to GDP this year as farm loan waivers shrank states’ fiscal space and the Centre struck a balance between counter-cyclical policy and the need to maintain fiscal credibility; short-term impact of farm loan waivers is likely to be deflationary; more downside risk to fiscal outlook than envisaged in the Budget due to reduced tax revenue from slower nominal GDP growth, reduced GST collections owing to lower-than-earlier tax rates/transitional challenges and lower spectrum receipts due to the structural (RJio) jolt to the viability of telcos.
Declining profitability in power and telecom, which threatens to add to the twin balance sheet problem, the farm-sector stress and real exchange rate appreciation have all posed risks to growth.