Optimistic about the medium-term growth prospects, Chief Economic Advisor to Finance Ministry Arvind Subramanian on Friday said that all policy tools must be taken up to revive growth over the short term.
“There are very favourable medium-term developments but the real challenge is how to revive short-term growth,” he said at a press conference after the second volume of the Economic Survey was tabled in Parliament by Finance Minister Arun Jaitley.
In the six months since the first volume of the Survey was released in January, the second volume was more cautious on growth and said that achieving the higher end of the 6.75-7.5 per cent GDP growth estimated earlier will be difficult.
“It is less likely that we will reach the upper range of the growth projection,” said Subramanian, who is the key author of the Survey, adding that fiscal and monetary policies will have to be used to revive growth.
The first set of official indicators on economic growth for the fiscal will be available on August 31 when the Central Statistics Office will release the quarterly GDP estimate for April-June 2017.
He said efforts to address the twin balance sheet problems through the Insolvency Code and the Banking Regulation (Amendment) Act, 2017 will act as a “big policy lever”.
Further, improved revenue collections from the Goods and Services Tax could help boost growth through higher expenditure.
“If we get a fiscal bonanza from GST, we should spend it in line with fiscal targets,” he said, when asked about the ambitious spending plan outlined in the Medium Term Expenditure Framework Statement.
With inflation lower by an average 150 basis points than the target in the last 10 months, the CEA batted for a further reduction in policy rates by the Monetary Policy Committee.
“Structural decline in inflation rates and outlook has created scope for lower interest rates, monetary policy,” he said, adding that the Survey has only outlined the potential scope but a final decision and timing of the move rests with the MPC.
“We have done substantially well in checking inflation, which will be well within target at the end of the fiscal,” he said.
With retail and wholesale inflation at a record low, the six-member MPC led by Reserve Bank of India Governor Urjit Patel had cut the repo rate by 25 basis points this month.
On GSTWhile the second volume of the Survey has pointed to exclusions from GST of sectors such as land, real estate, petroleum and alcohol and the low rate on gold, Subramanian said that the new tax levy should be allowed to stabilise before making more changes.
“We need to allow GST to stabilise and then start the process of improving things,” he said, adding that he is hopeful, that the GST Council would eventually work on these issues.