NEW DELHI: There’s trouble brewing for our economy in several quarters and Finance Minister Arun Jaitley may have to bite the bullet and introduce some unpopular measures in his next Budget to spur growth. The Economic Survey Part-II released on Friday said the country is facing an uncertain fiscal outlook going forward.
It warned that achieving higher end of 6.75-7.5 per cent growth, estimated earlier, would be difficult as indicators like industrial production, credit offtake, investment and capacity utilisation point to a deceleration in real activity.
The balance of “risks to growth has shifted to the downside,” said author of the report and Chief Economic Advisor Arvind Subramanian. The reasons for this are many -- farm loan waivers, stressed farm revenues, decline in prices of non-cereal food, appreciation of the rupee and transition to the new tax regime. For instance, States waiving off close to Rs 2.7 trillion worth farm loans could cut demand by up to 0.7 per cent of the GDP, it says.
The survey suggested more interest rate cuts to boost demand and thereby the economy. But that won’t be easy. The government will have to convince the central bank to cut rates, by pushing policy measures to keep inflation under control. With inflation plummeting to 1.5 per cent in June, weak demand has been of serious concern. The survey pointed that inflation is expected to remain below the medium-term target of 4 per cent
“The deflationary impulses in the economy need to be countered through all possible policy levers,” industry body FICCI said reacting to the survey. The industry has been asking for a rate cut for the last two years warning that unless private investment cycle is revived, sustaining growth and generating jobs would be difficult.
Work visa regime in countries like the US, competition from new players in Eastern Europe and lack of skilled manpower are the key challenges for the local IT industry, it said. “Misconstruing mobility of skilled people as immigration issue is a deterrent to the growth of this global business,” it added.
Real estate sector, according to the report, has suffered a massive setback. FDI in the construction sector fell by a whopping 59 per cent last fiscal to $1.9 billion. “The sector is facing demand slowdown in the last few years leading to fall in housing sales and new launches during 2016, delay in project execution and rise in debt of developers,” it added.