CPI inflation forecasted to be below 4% by March — Economic Survey II

Economic Survey: 10 takeaways from Narendra Modi government's economic report card ahead of Independence Day

India's service sector, which was highly resilient even during the global financial crisis, has moderated to 7.7 per cent in 2016-17, according to the Economic Survey.

Chief Economic Adviser Arvind Subramanian (right) with National Affairs Editor P Vaidyanathan Iyer at the The Indian Express office. "The conclusion is inescapable that the scope for monetary easing is considerable", said Subramanian.

Authored by Dr Arvind Subramaniam, the Chief Economic Advisor to the government, the survey says that reforms such as privationsaton and disinvestment of Air India, creation of aviation hubs, and reconsidering th 0/20 rule re some suggestions to improve Indian airlines share in the worldwide market.

Drafted by Chief Economic Advisor Arvind Subramanian, the survey was tabled in the Parliament by Finance Minister Arun Jaitley in the Lok Sabha on the last day of the monsoon session. The second part, containing more of a backward-looking review, was presented in Parliament on Friday.

Employment in India poses a great challenge in terms of its structure which is dominated by informal, unorganized and seasonal workers, said the Survey. It then suggested there had been a "paradigm shift" in inflation due to multiple factors, including steps taken by the government and RBI as well as structural changes in the oil and agricultural markets.

On the structural reform agenda, the Survey said the Government is implementing GST, Air India privatisation, further cutting down on energy subsidies, addressing twin balance sheet challenge facing banks.

"Economy is yet to gather its full momentum and still away from its potential", Survey said.

The Survey, however, cautioned that farm loan waivers, non-cereal food inflation continue to reign anxiety on the Indian economy. It said farm loan waiver could cut economy demand by up to 0.7% of GDP as the waivers by states could touch Rs 2.7lakh crore.

Although he didn't fault the RBI's new inflation-targeting framework, he did question the approach of its Monetary Policy Committee. He had also flagged concerns over transition issues arising from implementing the Goods and Services Tax (GST).

The Survey said that during 2016-17, Railways registered a negative growth of 4.5 percent over previous year. Consumer price index-commonly referred to as retail inflation that the RBI tracks-moderated sharply to 1.54% in June, the lowest since the index was rebased to 2012 in a new data series. The average inflation is seen at 3% in FY18.

The survey said the fiscal outlook for the year is uncertain because of reduced revenue from slower-than-anticipated nominal growth, reduced GST collections, lower telecom spectrum receipts and increased expenditure of Rs 30,000 crore on account of the seventh pay commission awards.

He said that real credit growth and all other factors pointed in the same direction of deceleration of the economy and the cleanup of the TBS problem was necessary for the growth to rebound.

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