States must cut expenditure/raise taxes to accommodate farmer loan-waiver: CEA Subramanian

5.4 lakh new tax payers added post-demonetisation CEA Arvind Subramanian

"If you put all the factors together, our assessment is that the March 2018 inflation may be well on target, but the average annual inflation for the full year will be well below target, closer to 3 per cent rather than 4 per cent".

Citing deflationary impulses, the Survey stressed that farm revenues, decline in non-cereal food prices, farm loan waivers, fiscal tightening and declining profitability in the power and telecom sectors are weighing on the economy.

The survey factors in four effects while estimating the impact on aggregate demand: Impact on private consumption via increases in net wealth of the private sector; impact on the public sector through changes in government expenditure/taxes; crowding out impact of higher state government borrowings and crowding in impact via higher credit availability as bad loans of bank fall proportionately. It emphasised on the growing confidence that macro-economic stability has become entrenched because of government and RBI actions. Assuming that the current broad stance of monetary and fiscal policies is maintained, the forecast for GDP reflects the greater risks to the downside, the survey showed.

It also argued in favor of interest rate cuts to aid economic revival-a stand that may run counter to the Reserve Bank of India's steadfast position ignoring calls for further lending rate cuts despite persistently low inflation.

The central bank cut rates earlier this month to its lowest in seven years to boost the economy amid record low inflation.

The Survey said that during the period ranging from 2002-03 to 2015-16, passenger fare has increased at 3.6 percent compound annual growth rate (CAGR).

Former finance minister P Chidambaram Saturday asked the government to pay heed to certain challenges flagged by Chief Economic Adviser Arvind Subramanian in his Economic Survey instead of "shooting the messenger" "CEA speaks truth to power cautiously". The gross non-performing advances (GNPAs) ratio of SCBs rose from 9.2 percent in September 2016 to 9.5 percent in March 2017.

If other states will follow the UP model, an upper bound of loan waivers at the all-India level would be between Rs 2.2 and Rs 2.7 lakh crore, it said, adding that demands for farm loan waivers have emerged at a time when state finances have been deteriorating.

"Has cash come down in economy?"

There are early signs of tax base expanding post the implementation of GST, it said. "Unemployment and job losses are mounting that will result in more despondency among the youth", Sharma added.

"So relative to the past, there is now uniformity rather than multiplicity as well as considerably less complexity", it said. Although there was no mention of any agency, the officialtion of any agency, the official document tabled in Parliament said inflation had repeatedly been over-estimated -by a percentage point or more in six of the last 14 quarters.

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