India Inc reacts to Economic Survey, says it reflects anxiety, optimism

Economic Survey 2016-17 Vol II | India's fiscal deficit gap may decline to 3.2 per cent of GDP in FY18: Jaitley

"These include stressed farm revenues, as non-cereal food prices have declined; farm loan waivers and the fiscal tightening they entail; and declining profitability in the power and telecommunication sectors, further exacerbating the TBS (twin balance-sheet) problem", the Survey said.

There has been a 20 per cent decline in cumulative cash holding by companies and individuals post demonetisation while the number of taxpayers has increased 45 per cent since then, the Economic Survey has said, pointing to positives from the withdrawal of high-denomination banknotes in November past year.

In a first of its kind mid-year economic survey, the government highlighted that achieving the upper-end of 6.75-7.5 percent growth will be hard in 2017-18, putting to rest earlier projections that cited a growth rate of 6.75-7.5 percent in the current fiscal. The risk appetite of domestic as well as global investors took a hit, stock market's key indices - Sensex and Nifty - fell over 1 per cent to hit their one-month lows on Friday.

Farm loan waivers, which total Rs 1.25 lakh crore for states that have already announced such measures, could reach Rs 2.7 lakh crore if all states were to implement it.

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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. "Also, farm loan waivers could reduce aggregate demand by as much as 0.7 percent of gross domestic product (GDP), imparting a significant deflationary shock to an economy", the report cautioned. "Cyclical conditions suggest that the policy rate should actually be below".

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, more than that suggested by comparison with neutral interest rates. Stating that providing remunerative minimum support price (MSP) for crops to farmers was needed, he said policies that prop up market prices above MSPs need to be looked at. It said that these concerns are weighing heavy on the economy and keeping it away from its potential.

A number of indicators - GDP, IIP, credit offtake, 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. Since February 2017, the rupee has appreciated by about 1.5 per cent. "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. "Demonetisation should continue to pay dividends over time as the impetus towards formalising the economy and expanding tax base that it has set in motion continues".

The survey also said a new enforcement and compliance regime and increased digitalisation have reduced cash use for transactions.

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