Noting that the balance of risks to growth has shifted to the downside, the second volume of Economic Survey for 2016-17 has cautioned that India is less likely to achieve the upper end of the 6.75-7.5 per cent 2017-18 GDP growth range estimated in January this year.

Part of the reason for the 2017-18 GDP growth forecast likely to undershoot the upper end of the earlier estimated range is the “deflationary impulses”—arising from farm loan waiver, currency appreciation and GST implementation--weighing on the economy. Farm loan waiver (on the five States) is likely to reduce aggregate demand to the tune of 0.3 per cent on GDP.

“We are not changing the growth forecast range (6.75-7.5 per cent). But we are less likely to see the economy achieving the upper end of the range”, Arvind Subramanian, Chief Economic Advisor to the Finance Ministry, said here on Friday.

The Finance Minister Arun Jaitley had earlier in the day tabled the second volume of the Economic Survey 2016-17 in the Lok Sabha.

For India to sustain the current growth trajectory—in the last two years real GDP growth has averaged 7.5 per cent—the second volume has suggested action on more normal drivers of growth such as investment and exports and cleaning up of balance sheets to facilitate credit growth.

“For the year ahead, the structural reform agenda will be one of implementing actual and promised actions—GST, Air-India privatisation, and critically the Twin Balance Sheet (TBS) challenge”, the latest Survey said.

GOOD GST TO EVEN BETTER ONE

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 rate structure and exclusion from the base have scope for improvement, the Survey has said.

There is a need to bring electricity into the GST framework. This 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.

Also, inclusion of land and real estate and alcohol in GST will improve transparency and reduce corruption.

The Survey has also said that the tax on gold and jewellery products—items that are disproportionately consumed by the very rich—at 3 per cent is “still low”.

Also, keeping health and education completely out is inconsistent.

BANKING SECTOR

Even as the important actions taken by the Government and the RBI to address the twin balance sheet (TBS) challenge is playing out, there is need to as an ongoing priority think about a strategy that would complement the current resolution efforts with reform and recapitalisation.

This would help create a banking sector that can help revive credit , investment and growth, the Survey said.

The latest volume has mooted a three elements reform package—First, rescues of banks can be selective. The Prompt Corrective Action (PCA) framework can be invoked to ensure the worst performing banks are winnowed out of future lending and shrunk in size over time. Rescues could be extended solely to the group of viable and near viable banks.

Second, the role of private sector discipline could be expanded, including by allowing, in some cases, majority private sector ownership.

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

srivats.kr@thehindu.co.in

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