There are downside risks to achieving the higher end of the 6.75-7.5 per cent GDP or gross domestic product growth forecast for the fiscal year to March 2018, the finance ministry said in its mid-year Economic Survey, which was tabled in Parliament today. The Economic Survey is a report card of the country's financial health. The Survey noted risks to GDP growth from rupee appreciation, farm loan waivers, increasing stress to balance sheets in power, telecommunications, agricultural stress, and the transitional challenges from implementation of GST.
- Government presented mid-year economic survey for the first time today
- The survey says, achieving 7.5% GDP growth now seems difficult
- Rupee appreciation, farm loan waiver are adding stress to some sectors
The Survey also called for more monetary easing as it flagged risks to economic growth, citing a series of deflationary impulses weighing on Asia's third-largest economy.
In January, the Survey had forecast that the country's gross domestic product or GDP to grow between 6.75 per cent and 7.5 per cent in 2017-18. For the first time today, the government presented a second or a mid-year Economic Survey for the year 2017-18, highlighting the new factors that the economy faces since the last such exercise at the beginning of the year. On its growth forecast for the year, the Survey said: "The balance of risks seem to have shifted to the downside. The balance of probabilities has changed accordingly, with outcomes closer to the upper end having much less weight than previously."
On the upside, the Survey also noted several steps taken by the government and the Reserve Bank of India to address the challenges of bad loans and high debt levels of corporates. "This has boosted market confidence in the short run. Deleveraging of corporate balance sheets will be necessary to restore investment and credit demand. Deleveraging of bank balance sheets will be essential to unblock the choked channels of the supply of credit," the Survey said.
However, the Survey said, "the substantive growth impact of the steps taken will depend on the scope, effectiveness, and timeliness of resolution of stressed assets."
The Survey also said that GST, which came into effect from July 1, could provide some boost to the economy in the short-term. "There is also some upside from the GST. The removal of checkposts and the consequent easing of transport constraints can provide some short-term fillip to economic activity," the Survey said.
The survey also said inflation was expected to remain below the Reserve Bank of India's medium-term target of 4 per cent through to the end of March 2018. Retail inflation cooled to 1.54 percent, its lowest level in more than five years.
Lower inflation allowed the Reserve Bank of India last week to cut its main policy rate - the first easing by an Asian central bank this year - by 25 basis points to 6 per cent, the lowest since November 2010. The Survey also sees "considerable" scope for further easing of RBI's repo rate.