The Economic Survey, which was tabled in Parliament by Finance Minister Arun Jaitley, lowered India’s economic growth to 6.5 % for the current fiscal, an adverse effect of demonetisation. This is much lower than the 7.1 % forecast made by Central Statistics Office earlier this month. It is also 1.1 % down from the 7.6 % growth recorded in the last financial year.
However, the Survey said growth will pick up in the next fiscal and will be within the range 6.75-7.5 % in 2017-18.
“Given the uncertainty (after demonetisation), we provide a range: a 0.25 percentage point to 1 percentage point reduction in nominal GDP growth relative to the baseline of 11.25 per cent; and a 0.25 percentage point to 0.5 percentage point reduction in real GDP growth relative to the baseline of estimate of about 7 per cent,” it said.
“Over the medium run, the implementation of the GST, follow-up to demonetisation, and enacting other structural reforms should take the economy towards its potential real GDP growth of 8 per cent to 10 per cent,” the Survey stated.
Underlining the need for more reforms, the Survey listed some of the challenges that might impede India’s progress. It called for a cut in individual income tax rates and a timetable for reducing the corporate taxes. It also proposed widening the tax net to progressively encompass “all high incomes”.
Invoking Mahatma Gandhi’s vision of ‘wiping every tear from every eye’, it made a pitch for implementing Universal Basic Income (UBI) to entitle the poor with at least some income and thus eliminate poverty.
The forecast listed the downside risks in the extent to which the effects of demonetisation could linger into next financial year.
“Currency shortages also affect supplies of certain agricultural products, especially milk (where procurement has been low), sugar (where cane availability and drought in the southern states will restrict production), and potatoes and onions (where sowings have been low),” the Survey said, asking the government to be vigilant in preventing other agricultural products becoming what pulses were in 2015-16.
It also listed surge in global oil prices and possible eruption of trade tensions amongst the major countries as other risks.
Prepared by a team led by Chief Economic Adviser Arvind Subramanian, the Survey said economic growth is expected to return to normal as new currency notes in required quantities
come back into circulation.
“Demonetisation was a potentially powerful stick which now needs carrots as complements,” it said prescribing a five-pronged strategy.
“Follow-up actions to minimise the costs and maximise the benefits include: fast, demand-driven, remonetisation; further tax reforms, including bringing land and real estate into the GST, reducing tax rates and stamp duties; and acting to allay anxieties about over-zealous tax administration,” the Survey stated.
The Survey termed the passage of Constitutional amendment, paving the way for implementing the transformational GST, and demonetisation of old Rs 500 and Rs 1,000 notes as major domestic policy developments of the year.
Demonetisation, it said, has had “short-term costs but holds the potential for longterm benefits”.
(With inputs from PTI)