Achieving 6.75-7.5 per cent growth difficult due to farm loan waivers, rupee appreciation: Economic Survey

There are downside risks to the Indian government's growth forecast of 6.75-7.5 percent for the fiscal year to March 2018.

Image for representational purpose only. (File photo | Reuters)

NEW DELHI: Achieving the high end of the 6.75-7.5 per cent growth projected previously will be difficult due to appreciation of rupee, farm loan waivers and transitionary challenges from implementing GST, the Economic Survey said today.

For the first time today, the government presented a second or a mid-year economic survey for the year 2017-18 highlighting the new factors that the economy faces since the last such exercise in February.

It also said that the scope for monetary easing was considerable and this, coupled with reform to address the twin balance sheet challenge, will help the economy achieve its full potential quicker.

"Cyclical conditions suggest that the policy rate should actually be below...  the neutral rate. The conclusion is inescapable that the scope for monetary easing is considerable," he said.

The Economic Survey said that a number of indicators GDP, IIP, credit, investment and capacity utilisation, point to a deceleration in real activity since first quarter of 2016-17 and a further deceleration since the third quarter.

The first volume of the Survey in February had predicted the range of GDP growth of between 6.75-7.5 per cent, factoring in more buoyant exports, a post-demonetisation catch-up in consumption and a relaxation in monetary conditions consequent upon demonetisation.

Since then all the new factors-- real exchange rate appreciation, farm loan waivers, increasing stress to balance sheet in power, telecom, agricultural stress and transitional challenges from implementing the GST -- impart a deflationary bias to activity, the Survey said.

Since February 2017, the rupee has appreciated by about 1.5 per cent.

It said the government and the RBI have taken "prominent steps" to address the twin balance sheet challenge which has boosted market confidence in the short run. Also, the removal of checkposts and easing of transport constraints after Goods and Service Tax (GST) implementation can provide some shortterm fillip to economic activity.

The Survey said that the balance of risk to achieving the 6.75-7.5 per cent growth has shifted to the downside.

"The balance of probabilities has changed accordingly, with outcomes closer to the upper end having much less weight tha previously," it added.

Following are the highlights of Part-2 of Economic Survey 2016-17, tabled in Parliament today: 

•  Difficult to achieve upper end of 6.75-7.5 per cent real GDP growth predicted in January.
•  Fiscal deficit expected to decline to 3.2% of GDP in 201718, compared with 3.5% in 2016-17.
•  Retail inflation likely to remain below 4% by March.
•  Fiscal outlook for 2017-18 is uncertain.
•  Considerable scope for monetary policy easing; Repo Rate 25-75 basis points above neutral rate.
•  Structural reform agenda includes implementing GST, Air India privatisation, rationalising energy subsidies, addressing twin balance sheet challenge facing banks.
•  Early signs of tax base expanding post implementation of the Goods and Services Tax (GST).
•  Nominal GDP growth accelerated post demonetisation; 5.4 lakh new tax payers post note ban.
•  Demonetisation may continue to pay dividends over time.
•  Farm loan waiver could cut economy demand by up to 0.7% of GDP; State farm loan waivers could touch Rs 2.7 lakh crore.
•  Stock limits, movement curbs on farm goods need to end.
•  Credit off-take from banks continued to decelerate.
•  Private banks' loan growth more robust than of PSU banks.
•  House rent allowance may push inflation by 40-100 bps.
•  Economy lags dynamism to push inflation towards 4%.
•  Geopolitics not as big a risk for oil prices as before.
•  Gross non-performing advances (GNPAs) ratio of Scheduled Commercial Banks (SCBs) rose from 9.2 per cent in September 2016 to 9.5 per cent in March 2017.
•  India targets to lower the emissions intensity of GDP by 33-35 per cent by 2030; will raise share of non-fossil fuel based power generation capacity to 40 per cent.
•  Urgent need to increase access of the poor to more efficient energy resources.
•  Current account deficit (CAD) down to 0.7% of GDP in 201617 from 1.1% in 2015-16.
•  Gross FDI inflows to India increased significantly to USD 60.2 billion in 2016-17 from USD 55.6 billion in 2015-16.
•  Net FDI inflows at USD 35.6 billion as opposed to USD 36 billion in 2015-16.
•  India's forex reserves of USD 386.4 billion second largest after Brazil among major economies.
•  Green shoots on trade horizon; world trade growth projected at 3.8% and 3.9% in 2017 and 2018.
•  India's trade growth picking up.
•  Deterioration in quality learning in primary education, * Targeted enrolment in middle education a challenge.
•  Employment poses great challenge in structure dominated by informal, unorganised and seasonal workers.
•  High levels of under-employment, skill shortages.
•  Labour market impacted by rigid laws and emergence of contract labour.