India’s economy is expected to step up the pace of economic growth to anywhere between 7 percent and 7.5 percent in the 2018-19 financial year with exports and private investment set to rebound, said the Economic Survey report tabled in the Parliament last week.
The survey report though forecast that the economic management will be challenging in the coming year.
The report prepared by the Finance Ministry’s Chief Economic Adviser Arvind Subramanian put the GDP growth in the current financial year to 6.75 percent.
After registering GDP growth of over 7 per cent for the third year in succession in 2016-17, the Indian economy is headed for somewhat slower growth, estimated to be 6.5 per cent in 2017-18. This is slightly lower than the range of 6.5 per cent to 6.75 per cent being currently projected based on recent
developments. Even with this lower growth for 2017-18, GDP growth has averaged 7.3 percent for the period from 2014-15 to 2017-18, which is the highest among the major economies of the world.
The report says that this growth, having been achieved in a milieu of lower inflation, improved current account balance and a notable reduction in the fiscal deficit to GDP ratio, makes it all the more creditable. In addition to the introduction of GST, the year also witnessed significant steps being undertaken towards resolution of problems associated with non-performing assets of the banks, further liberalization of FDI, etc., thus strengthening the momentum of reforms. After remaining in negative territory for a couple of years, growth of exports rebounded into positive one during 2016-17 and strengthened further in 2017-18.
Highlights
- 2017/18 industry growth seen at 4.4 pct
- 2017/18 farm sector growth seen at 2.1 pct
- Economic management will be challenging in the coming year
- Biggest source of upside to growth to be from exports
- Cyclical conditions may lead to lower tax and non-tax revenues in 2017/18
- Private investment poised to rebound
There was an augmentation in the spot levels of foreign exchange reserves to close to US$ 414 billion, as on January 12, 2018. Concerns have been expressed about growing protectionist tendencies in some countries and it remains to be seen as to how the situation unfolds.
Additionally, average crude oil (Indian basket) prices have risen by around 14 percent so far in 2017-18. Going by the recent trends, the average crude oil prices could be in the vicinity of US$ 56-57 per barrel in the current financial year and could rise further by another 10-15 percent in 2018-19. Some of these factors could have a dampening effect on GDP growth in the coming year. However, with the world growth likely to witness moderate improvement in 2018, an expectation of greater stability in GST, and likely recovery in investment levels, and ongoing structural reforms, among others, should be supporting higher growth. On balance, country’s economic performance should witness an improvement in 2018-19.
The report highlights major reforms undertaken over the past year. The transformational Goods and Services Tax (GST) was launched at the stroke of midnight on July 1, 2017. And the long-festering Twin Balance Sheet (TBS) problem was decisively addressed by sending the major stressed companies for resolution under the new Indian Bankruptcy Code and implementing a major recapitalization package to strengthen the public sector banks. As a result of these measures, the dissipating effects of earlier policy actions, and the export uplift from the global recovery, the economy began to accelerate in the second half of the year. This should allow real GDP growth to reach 6¾ percent for the year as a whole, rising to 7-7½ percent in 2018-19, thereby re-instating India as the world’s fastest-growing major economy.
Against emerging macroeconomic concerns, policy vigilance will be necessary in the coming year, especially if high international oil prices persist or elevated stock prices correct sharply, provoking a “sudden stall” in capital flows. The agenda for the next year consequently remains full: stabilizing the GST, completing the TBS actions, privatizing Air India, and staving off threats to macroeconomic stability. The TBS actions, noteworthy for cracking the long-standing “exit” problem, need complementary reforms to shrink unviable banks and allow greater private sector participation. The GST Council offers a model “technology” of cooperative federalism to apply to many other policy reforms.
Over the medium term, three areas of policy focus stand out: Employment: finding good jobs for the young and burgeoning workforce, especially for women. Education: creating an educated and healthy labour force. Agriculture: raising farm productivity while strengthening agricultural resilience. Above all, India must continue improving the climate for rapid economic growth on the strength of the only two truly sustainable engines—private investment and exports.
Inflation in the country continued to be moderate during 2017-18. CPI-based headline inflation averaged 3.3 percent during April-December 2017-18, the lowest in the last six financial years. The significant reduction in food inflation, particularly of pulses and vegetables, moderated the general inflation. The average food inflation fell to 1.2 percent during April-December 2017-18. Core inflation too declined during this period. Many States witnessed a reduction in inflation across rural as well as urban areas during the year.
The growth rates of agriculture and allied sectors have been fluctuating at 1.5 percent in 2012-13, 5.6 percent in 2013-14, (-) 0.2 percent in 2014-15, 0.7 percent in 2015-16 and 4.9 percent in 2016-17 (Table 1). The uncertainties in growth in agriculture are explained by the fact that more than 50 percent of agriculture in India is rainfall dependent which aggravates the production risks In a developing country like India, agriculture sector and rural economy have a significant role in providing livelihoods, ensuring food security and providing impetus to the growth of industries and service sectors. The process of development inter alia results in declining share of agriculture in Gross Value Added (GVA), which is being witnessed in India too. However, the declining share does not undermine the significance of the sector for employment, livelihood and food security. With structural changes in agriculture, there is greater scope to broaden the range of activities related to agriculture to improve productivity and make way for sustainable growth.
Later addressing media persons Arvind Subramanian said “I will single out two achievements. One is the launch of the GST. There were bound to be teething challenges. Secondly, we had spoken about the twin balance sheet challenges. For the first time in 14 years, India got the Sovereign Rating upgrades.”
He said, “We need to see why the Indian economy de-coupled from the rest of the economies over 3-4 quarters. Our interest rates went up sharply. That affected our competitiveness. We see there is a robust revival.”
— Organiser Bureau
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