Key Highlights of the Economic Survey 2017

Economy forecast to grow 6.75 to 7.5% in 2017-18: Key Highlights of the Economic Survey 2017

Ahead of the Union Budget 2017, the Hon’ble Finance Minister Shri Arun Jaitley tabled today Economic Survey Report 2017 in the Parliament, outlining the broad direction of the Union Budget 2017 and the economic performance of the Country.

A flagship annual document of the Ministry of Finance, Economic Survey reviews the developments in the Indian economy over the previous 12 months, summarizes the performance on major development programmes, and highlights the policy initiatives of the Government and the prospects of the economy in the short to medium term. Economic Survey 2016-17, which has been prepared by the Chief Economic Adviser, Dr. Arvind Subramanian, says economic growth to return to normal as new currency notes in required quantities come back into circulation and follow-up action on demonetisation is taken. Therefore, the real GDP growth in 2017-18 is projected to be in the range of 6¾-7½%.

The Survey states that against the backdrop of robust macro-economic stability, the year was marked by two major domestic policy developments-the passage of the Constitutional Amendment, paving the way for implementing the transformational Goods and Services Tax (GST), and the action to demonetize the two highest denomination notes. The GST will create a common Indian market, improve tax compliance and governance, and boost investment and growth; it is also a bold new experiment in the governance of India’s cooperative federalism.

The Survey Report says that demonetisation has had short-term costs but holds the potential for long-term benefits. Follow-up actions to minimize the costs and maximize 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. These actions would allow growth to return to trend in 2017-18, possibly making it the fastest-growing major economy in the world, following a temporary dip in 2016-17.

We are sharing with you the key highlights of the Economic Survey 2016-17:

Economic Outlook, Prospects and Policy Challenges:

The Indian Economy has sustained a macro-economic environment of relatively lower inflation, fiscal discipline and moderate current account deficit coupled with broadly stable rupee-dollar exchange rate. The Economic Survey 2016-17 states that such a sustenance is despite continuing global sluggishness. It says:

• As per the advance estimates released by the Central Statistics Office, the growth rate of GDP at constant market prices for the year 2016-17 is placed at 7.1%, as against 7.6% in 2015-16.This estimate is based mainly on information for the first seven to eight months of the financial year. Government final consumption expenditure is the major driver of GDP growth in the current year.
• Fixed investment (gross fixed capital formation) to GDP ratio (at current prices) is estimated to be 26.6% in 2016-17, vis-à-vis 29.3% in 2015-16.
• For 2017-18, it is expected that the growth would return to normal as the new currency notes in required quantities come back into circulation and as follow-up actions to demonetisation are taken. On balance, there is a likelihood that Indian economy may recover back to 6¾ to 7 ½% in 2017-18.

Fiscal

• Indirect taxes grew by 26.9% during April-November 2016.
• The strong growth in revenue expenditure during April-November 2016 was boosted mainly by a 23.2% increase in salaries due to the implementation of the Seventh Pay Commission and a 39.5% increase in the grants for creation of capital assets.

Prices

• The headline inflation as measured by Consumer Price Index (CPI) remained under control for the third successive financial year. The average CPI inflation declined to 4.9% in 2015-16 from 5.9% in 2014-15 and stood at 4.8% during April-December 2016.
• Inflation based on Wholesale Price Index (WPI) declined to (-) 2.5% in 2015-16 from 2.0% in 2014-15 and averaged 2.9% during April-December 2016.
• Inflation is repeatedly being driven by narrow group of food items, of these pulses continued to be the major contributor of food inflation.
• The CPI based core inflation has remained sticky in the current fiscal year averaging around 5%.

Trade

• The trend of negative export growth was reversed somewhat during 2016-17 (April-December), with exports growing at 0.7% to US$ 198.8 billion. During 2016-17 (April-December) imports declined by 7.4% to US$ 275.4 billion.
• Trade deficit declined to US$ 76.5 billion in 2016-17 (April-December) as compared to US$ 100.1 billion in the corresponding period of the previous year.
•  The current account deficit (CAD) narrowed in the first half (H1) of 2016-17 to 0.3% of GDP from 1.5% in H1 of 2015-16 and 1.1% in 2015-16 full year.
• Robust inflows of foreign direct investment and net positive inflow of foreign portfolio investment were sufficient to finance CAD leading to an accretion in foreign exchange reserves in H1 of 2016-17.
• In H1 of 2016-17, India’s foreign exchange reserves increased by US$ 15.5 billion on BoP basis.
• During 2016-17 so far, the rupee has performed better than most of the other emerging market economies.

External Debt

• At end-September 2016, India’s external debt stock stood at US$ 484.3 billion, recording a decline of US$ 0.8 billion over the level at end-March 2016.
•  Most of the key external debt indicators showed an improvement in September 2016 vis-à-vis March 2016. The share of short-term debt in total external debt declined to 16.8% at end-September 2016 and foreign exchange reserves provided a cover of 76.8 per cent to the total external debt stock.
• India’s key debt indicators compare well with other indebted developing countries and India continues to be among the less vulnerable countries.

Agriculture

• Agriculture sector is estimated to grow at 4.1% in 2016-17 as opposed to 1.2% in 2015-16; the higher growth in agriculture sector is not surprising as the monsoon rains were much better in the current year than the previous two years.
• The total area coverage under Rabi crops as on 13.01.2017 for 2016-17 is 616.2 lakh hectares which is 5.9% higher than that in the corresponding week of last year.
•  The area coverage under wheat as on 13.01.2017 for 2016-17 is 7.1% higher than that in the corresponding week of last year. The area coverage under gram as on 13.01.2017 for 2016-17 is 10.6% higher than that in the corresponding week of last year.

Industry

• Growth rate of the industrial sector is estimated to moderate to 5.2 per cent in 2016-17 from 7.4% in 2015-16.During April-November 2016-17, a modest growth of 0.4% has been observed in the Index of Industrial Production (IIP).
• The eight core infrastructure supportive industries, viz. coal, crude oil, natural gas, refinery products, fertilizers, steel, cement and electricity registered a cumulative growth of 4.9% during April-November 2016-17 as compared to 2.5% during April-November 2015-16. The production of refinery products, fertilizers, steel, electricity and cement increased substantially, while the production of crude oil, natural gas fell during April-November 2016-17. Coal production attained lower growth during the same period.
• The performance of corporate sector (Reserve Bank of India, January 2017) highlighted that the growth of sales grew by 1.9% in Q2 of 2016-17 as compared to near stagnant growth of 0.1% in Q1 of 2016-17. Growth in net profit registered a remarkable growth of 16.0% in Q2 of 2016-17 as compared to 11.2% in Q1 of 2016-17.

Services

• Service sector is estimated to grow at 8.8% in 2016-17, almost the same as in 2015-16. It is the significant pick-up in public administration, defence and other services, boosted by the payouts of the Seventh Pay Commission that is estimated to push up the growth in services. 

Social Infrastructure, Employment and Human Development

• The Parliament has passed the “Rights of Persons with Disabilities Act, 2016”. The Act aims at securing and enhancing the rights and entitlements of Persons with Disabilities. The Act has proposed to increase the reservation in vacancies in government establishments from 3% to 4% for those persons with benchmark disability and high support needs.