Downside risks to growth, fiscal outlook

Sanjeev Sharma

Tribune News Service

New Delhi, August 11

The downside risks to growth and fiscal outlook of the Indian economy are piling up in the form of deflationary impulses like farm loan waivers, stressed farm revenues, as non-cereal food prices have declined and declining profitability in the power and telecommunication sectors, further exacerbating the Twin Balance Sheet (TBS) problem, according to the second part of Economic Survey tabled in Parliament today.

Besides, the appreciation of rupee and transition effects of the GST are also likely to impact growth in the current year.

The Survey warned of fiscal slippages as “a series of deflationary impulses are weighing on an economy yet to gather its full momentum”. The Survey has warned that farm loan waivers could cut demand in the economy by up to 0.7% of GDP and if implemented across the country the quantum of waivers could touch Rs 2.7 lakh crore. The Survey pointed out the example of Uttar Pradesh which has cut capital expenditure to accommodate the waiver.

Chief Economic Adviser Arvind Subramanian said due to these factors the likely growth this fiscal will be towards the lower end of the 6.75-7.5% band suggested in January-end.

“There are very favourable medium-term developments. The real challenge now is short-term growth and how we need to respond to that. We need to bring all the policy tools we have to revive short-term growth,” said Subramanian while making a presentation on the Economic Survey.

The favourable developments are introduction of GST, positive impacts of demonetisation, decision in principle to privatise Air India, further rationalisation of energy subsidies and actions to address the Twin Balance Sheet (TBS) challenge through insolvency laws.

Subramanian said demonetization has led to lower cash usage with a 20% reduction in the equilibrium cash holding which means that the cash-GDP ratio has come down by about 1.6 percentage points. He further said 5.4 lakh additional taxpayers were added during post- demonetisation period with a reported income of Rs 10,587 crore.

The Chief Economic Adviser also flagged the issue of the agriculture puzzle which is witnessing reducing farm revenues in non- cereal crops despite good monsoon.

The Economic Survey has called for major reforms in agriculture given that 2017 will also be a year of surplus rather than scarcity, and to the extent that firming up prices will be essential to boost agricultural incomes, it is imperative to learn the lessons from the experience of 2016.

“Hence, all the impediments that come in the way of realising better prices for farmers—stock limits imposed under the Essential Commodities Act, export restrictions, impediments to the implementation of e-NAM—need to be removed”, the Survey said.

Apart from growth, the Survey said fiscal outlook for this year is uncertain with downside risks (beyond those expected at the time of the Budget) including reduced tax revenue from slower growth, reduced GST collection on account of the lower GST rates compared with the pre-GST taxes, and transitional challenges, reduced spectrum receipts and higher expenditures from the 7th Pay Commission estimated at Rs 30,000 crore.

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.