Achieving 7.5% GDP growth in FY '18 hard: Economic Survey 2017

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Across-the-board deceleration in economic activity has made it hard to get to the 7.5 per cent GDP growth as projected earlier for the current fiscal, Economic Survey said today as it called for more interest rate cuts and use of all policy tools to revive momentum.

"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.

The Survey said that the balance of risk to achieving the 6.75-7.5 per cent growth has shifted to the downside.

Drafted by Chief Economic Advisor Arvind Subramanian, the survey reflected strong growth in tax revenue, sustenance of the pace of capital spending and a consolidation of non-salary or pension revenue expenditure.

India Inc on Friday said the Economic Survey has rightly reflected a "combination of optimism and anxiety" towards the country's growth outlook.

The Volume-1 of the Economic Survey, tabled in Parliament on January 31, had predicted a range for GDP growth of between 6.75 and 7.5 per cent, factoring in more buoyant exports as global recovery gathered steam, a post-demonetisation catch-up in consumption, and a relaxation of monetary conditions. "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.

The latest Economic Survey, while lauding the efforts of the GST Council, has highlighted certain challenges that need to be taken up in the months ahead to take India from a good GST to an even better one. The conclusion is inescapable that the scope for monetary easing is considerable, more than that suggested by comparison with neutral interest rates.

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The survey today said bringing electricity under GST would improve the competitiveness of Indian industry because taxes on power get embedded in manufacturers' costs, and can be claimed back as input tax credit.

It pointed out that measures taken by the government have resulted in FDI equity inflow of 43.4 billion United States dollars in 2016-17, which is not only an increase of 8% over the previous year, but also the highest ever.

Criticising the decision to keep health and education completely out of GST, the survey said the move is "inconsistent with equity" as these services are consumed disproportionately by the rich.

Faster monetary easing, the ministry argued, would help deleverage corporate balance sheets and restore banks' profits, helping the economy realise its full potential.

To tackle the issue of credit distribution, the Survey urges that credit is provided in time, maintaining affordability, and channelising formal and institutional credit to the small and marginal farmers, to ensure inclusive growth. Rescues could be extended exclusively to the group of viable and near viable banks.

Third, these measures should be coupled with specific actions, for example recapitalising banks and strengthening their lending procedures and risk management frameworks.

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