Global

Services sector growth moderated to 7.7 per cent in FY17: Eco Survey

Services sector growth moderated to 7.7 per cent in FY17: Eco Survey

The Economic Survey, Volume 2 presented today made no concealment of the hard times ahead while forecasting uncertain fiscal outlook for the current fiscal year and warned that attaining 6.75-7.5 per cent GDP growth projected previously will be no cakewalk as appreciation of rupee, farm loan waivers and challenges from implementing GST continue to cast shadows on the Indian economy's bright spots. "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.

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.

The Survey points to scope of further monetary easing by the RBI.

Sunil Kumar Sinha, Principal Economist, India Ratings and Research said: "Survey correctly cautions about the series of deflationary impulses weighing on the economy due to looming twin balance sheet challenge, declining profitability in the sectors such as power or telecommunication sectors, the launch of the GST and demonetisation".

Subramanian said farm loan waiver by states would have a deflationary effect by cutting demand in the economy by between 0.4 to 0.7 percent of GDP.

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.

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.

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Chief economic adviser at India's Finance Ministry, Arvind Subramanian, speaks at the Global Business Summit in New Delhi on January 17, 2015.

"We seem to have achieved a 20 per cent reduction in equilibrium cash holding in the economy", Subramanian said. "Such waivers would be deflationary and impact demand by up to Rs 1.14 lakh crore". The conclusion is inescapable that the scope for monetary easing is considerable, it said.

There is a need to substantially cut down the policy rates by the Reserve Bank of India and ensure its full transmission by the banks in the form of lower lending rates for consumption and investment activities, the industry body noted.

However, it indicated that sluggish growth and increasing indebtedness in some sectors of the economy have impacted the asset quality of banks and this is a cause for concern.

" CPI inflation by March likely to remain below 4 per cent. More dramatic have been developments during 2016-17- inflation declined sharply from 6.1 percent in July 2016 to 1.5 per cent in June 2017", it said.

The survey called for a further drop in interest rates - now at 6 percent after a 25 basis points cut last week.


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