NEW DELHI: India will grow at the rate of 6.75-7.5 per cent in 2017-18, states Economic Survey 2016-17. “Demonetisation will have both short-term costs and long-term benefits,” said Arvind Subramanian, chief economic advisor (CEA).
The Survey, tabled by Finance Minister Arun Jaitley in Parliament on Tuesday, points out that in 2016-17, the country went through a process of contraction in supply of cash, resulting in a temporary slowdown in gross domestic product (GDP) growth. “We believe the move to demonetise is likely to have some effect on the psyche of the consumer who could be more cautious in spending,” said Anis Chakravarty, lead economist, Deloitte Haskin & Sells LLP.
According to Subramanian, the positive aspect was increase in digitisation and the long-term benefit in the form of tax compliance, emergence of true price of real estate, and enhanced revenue. Further, the remonetisation will ensure that the cash squeeze is eliminated by April 2017.
The cash crunch following demonetisation will have significant implications for the GDP, reducing 2016-17 growth by 0.25 to 0.50 percentage points compared to the baseline of 7 per cent.
Data released in early December 2016 had indicated that the economy was likely to grow at 7.1 per cent in 2016-17, compared to 7.6 percent in 2015-16, largely due to the impact of cash-crunch due to demonetisation. “Once the cash supply is replenished, which is likely to be achieved by the end of March 2017, the economy would revert to the normal...,” states the Survey.
The Survey points to a reformative Budget, which will have a strong focus on infrastructure, employment generation and easing business conditions, says Richard Rekhy, CEO of KPMG in India. “The issue of non-performing assets is most likely to be addressed coherently, along with taking stock of the public -private partnership logjams,” said Richard Rekhy, CEO, KPMG in India.
Subramanian buttressed his claims of India’s growth story, by trashing reports by analysts firms that failed to downgrade China, despite its poor performance. “Even with this performance, India will continue to be the fastest-growing major economy in the world,” said Pankaj Patel, president, FICCI.
The Survey also called for a shift towards a new public debt management roadmap. “…the basic tenets of the Fiscal Responsibility and Budget Management remain valid.”