"The likely growth this fiscal will be towards the lower end of the 6.75-7.5 per cent band suggested in January-end, mainly because of downside effects of factors like the appreciation of the rupee, farm loan waivers and transitory challenges from implementing the GST and the only upside possibility is exports growth", Subramanian said after the Economic Survey Volume-II was tabled in Parliament.
The economic survey-volume two tabled in Parliament on Friday has suggested that Indian Railways should explore the non-fare revenue sources for growth. Uttar Pradesh, which announced farm loan waiver, had to resort to 13 per cent reduction in capital expenditure in order to fund loan waiver, Subramanian said.
"Also farm loan waivers could reduce aggregate demand by as much as 0.7 percent of GDP, imparting a significant deflationary shock to an economy", the government's press release on the survey stated. "It seems something quite substantial has been achieved", Subramanian said. Unless profit growth of companies is rapid, there is a strong tendency for correction in stock prices all over the world, illustrated for India in the aftermath of the boom of the mid-2000s. "Also, the earlier the easing, complemented with other reform actions especially to address the twin balance sheet challenge, the quicker the economy can approach its full potential", the survey said. It emphasised on the growing confidence that macro-economic stability has become entrenched because of government and RBI actions. These include: "stressed farm revenues, as non-cereal food prices have declined; farm loan waivers and the fiscal tightening they will entail; and declining profitability in the power and telecommunication sectors, further exacerbating the TBS (twin balance sheet) problem". "As per Survey calculations, private investment growth is estimated to be negative in 2016-17".
"More research is needed to disentangle all the rich and complex interactions between demonetisation and its impact on the informal sector", the survey said. It states that there may be a slowdown in growth in real activity in indicators such as Gross Domestic Product (GDP), Index of Industrial Production (IIP), credit, investment, and capacity utilisation since first quarter of 2016-17.
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Lauding the Centre's demonetisation move, the document said that there was a spurt in new taxpayers and reported income after the note ban and a total of 5.4 lakh new taxpayers got added post it.
The Survey said inflation is expected to remain below the Reserve Bank of India's medium-term target of 4 per cent. However, going forward, there is scope for monetary easing that will facilitate the economy bounce back quicker.
Mauritius, Singapore and Japan have been top three source countries of FDI inflows to India contributing 36.2 per cent, 20 per cent and 10.8 per cent, respectively, during 2016-17, according to the Survey. "The conclusion is inescapable that the scope for monetary easing is considerable", said Subramanian.