The economy is set to grow at 7-7.5% in the next financial year on the back of reviving exports and investment even as the negative effects of demonetisation and the teething troubles of the Goods and Services Tax recede, Chief Economic Advisor Arvind Subramanian said in the Economic Survey 2018.
The Survey, tabled in Parliament by Finance Minister Arun Jaitley on Monday, further predicted that GDP growth in the current financial year would touch 6.75%, higher than the 6.5% estimated by the Central Statistics Office.
For more reforms
Looking ahead, it said reform measures like the implementation of the Insolvency and Bankruptcy Code and the recapitalisation plan for public sector banks would go a long way in addressing the twin balance sheet problem afflicting both corporates and banks, which would in turn further boost economic growth.
“As a result of these measures, the dissipating effects of earlier policy actions, and the export uplift from the global recovery, the economy began to accelerate in the second half of the year,” the Economic Survey said.
“This should allow real GDP growth to reach 6.75% for the year as a whole, rising to 7-7.5% in 2018-19, thereby re-instating India as the world’s fastest growing major economy,” it said.
However, the Survey did caution about some ongoing trends — such as rising oil prices and stock market prices — that would require vigilance and preventive action.
“Against emerging macroeconomic concerns, policy vigilance will be necessary in the coming year, especially if high international oil prices persist or elevated stock prices correct sharply, provoking a ‘sudden stall’ in capital flows,” it said.
Oil-inflation link
Mr Subramanian said that a $10 per barrel increase in oil prices results in a slowdown in GDP growth by 0.2-0.4%, and a rise in inflation of 0.3-0.4%.
Apart from addressing these risks, the government also has several policy actions it has to take in the next financial year, the Survey pointed out.
These include completing the reforms needed to effectively address the ailing balance sheets of corporates and banks, and finalising the privatisation of Air India.
“The TBS actions, noteworthy for cracking the long-standing ‘exit’ problem, need complementary reforms to shrink unviable banks and allow greater private sector participation,” the Survey said.
In the medium term, the Survey highlighted three areas that would require a policy focus including employment, education, and agriculture.
“There has been a lot of stress on the agriculture sector and job creation has been a challenge given the global backlash and technological advancements,” Ranen Banerjee, Partner and Leader, Public Finance and Economics at PwC India said. “We therefore expect a lot of emphasis in the budget on the farm sector as well as job intensive sectors.”
