Mumbai: The second tranche of Economic Survey report for 2016-17 was revealed on Friday, as the government has geared itself up for a mid-year assessment of macro-economic indicators. The economy grew at 7 per cent in 2016-17 full fiscal year based on a revised estimate. The GDP growth rate for January-March 2017 quarter was revised to 7.1 per cent. There were a number of factors that had influenced the GDP numbers.
Before demonetisation of Rs 1,000 and Rs 500 denomination notes on November 8, 2016, experts were of the view that India’s economy will do fairly well as compared with other major growing economies. It was only after the notes were recalled that the economists changed their outlook.
But as effects of decision of notes recall, the anti-black money exercise, started to pour in and assumed momentum, major ratings agencies downgraded their predictions.
The Economic Survey has also echoed almost similar views. Here are a few factors that explain as to why India’s economy would not be able to tread on the speedier track as it was earlier expected, especially in the backdrop of demonetisation and roll out of Goods and Services Tax.
Change in stance to ‘neutral’ from ‘accomodative’
Earlier this year, the Reserve Bank of India quiet unexpectedly changed its monetary policy stance from ‘accomodative’ to ‘neutral’ that sent a wrong message that the central bank was now working toward ending easing cycle. However the fears that were based on speculations soon subsided with the RBI cutting repo rate by 25 basis points to 6 per cent at its August 2 policy review.
The outcome of the last monetary policy meet was on expected lines as the central bank had to pencil in two important factors that favoured a rate cut, one was record low retail inflation that stood at 1.54 per cent in June and the other was a unanimity among experts for a cut in the key lending rate. A neutral policy stance means the central bank can sway either ways given the prevailing economic circumstance around the time of policy meet.
The Economic Survey says the central bank needs to do more to help government spur the slower GDP growth. Chief Economic Adviser Arvind Subramanian had earlier criticised the RBI for not adopting a more accomodative policy stance.
The Goods and Services Tax or GST has been divided into six slabs for taxing the supply chain in the country. Under the new regime, the government has tried its level best to keep the new tax rates on par with the taxes that were charged before the GST. Traders community has sought a relaxation as they say there was still some confusion with respect to new national sales tax. The delay, if any, in filing GST returns may further push the economy on backtracks. As, tax to GDP ratio or tax revenues form a significant chunk of India’s $2.2 trillion economy.
Huge stockpile of NPAs
The Survey has warned against farm loan waivers as according to the report waivers emit inflationary signals into the economy. Country’s largest public sector bank the State Bank of India has earlier flagged the issue. The SBI had said loan waivers are not good for the banking sector as they may add to the bad loans. The banking sector is saddled with over Rs 6 lakh crore bad loans, the number excludes almost Rs 3 lakh crore NPAs faced by private ector banks.