Economic Survey-2 flags risks to growth, backs rate cuts

Mid-Year Economic Survey Here are the Key Highlights

Mid-Year Economic Survey Here are the Key Highlights

Such loan waivers, the Survey said, could reduce aggregate demand by as much as 0.7 per cent of GDP, imparting a significant deflationary shock to the economy.

There isn't enough data to measure impact of the note-ban on informal economy, but as pointed out in economic survey volume I, the impact can be captured through two-wheelers sales data, which has picked up now.

However, "there is an element of anxiety on account of factor such as farm loan waivers, dip in non-cereal food prices and weakening performance of sectors such as power and telecommunications".

"There has been an across-the-board deceleration" in real economic activity since the first and second quarter of previous year, said Chief Economic Adviser Arvind Subramanian, the author of the Survey.

The survey warned that a series of deflationary impulses are weighing on the economy and yet to gather full momentum.

According to the Economic Survey, CPI inflation declined to 4.5% during 2016-17, with a broad-based price decline in all major commodity groups. 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.

One of his favourite pinch-inflation easing out so should the monetary policy be has found its way into the Survey.

"Cyclical conditions suggest that the policy rate should actually be below. the neutral rate".

The Federation of Indian Chambers of Commerce and Industry (FICCI) urged for the need to enable a further cut down of policy rates by the Reserve Bank of India (RBI), to spur demand and help ease the pressure on corporate balance sheets. The conclusion is inescapable that the scope for monetary easing is considerable, more than that suggested by comparison with neutral interest rates.

# On farm loan waivers of many state governments, the survey said that there are rising concerns that the waivers may disrupt finances of the said state government.

Volume-II of the Economic Survey released on Friday painted a mixed picture of the economy suggesting that achieving higher end of the 6.75-7.5 per cent GDP growth would be hard.

In the U.S., the sector growth growth decelerated to 1.9 per cent in 2016 from 2.8 per cent in 2015 mainly due to slowdown in sectors like real estate, professional and business services. Various factors such as launch of the Goods and Services Tax (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 contribute to this optimism, it noted. Both these sectors need some immediate steps like resolution of the bank non-performing assets (NPAs) and a pragmatic approach for the "twin balance sheet" problem, Rawat said.

"India's services sector growth, which was highly resilient even during the global financial crisis, has been showing moderation in recent times", it said.