'Meeting 7.5% GDP growth a challenge'

'Meeting 7.5% GDP growth a challenge'

'Meeting 7.5% GDP growth a challenge'

Subramanian said farm loan waiver by states would have a deflationary effect by cutting demand in the economy by between 0.4 to 0.7 percent of GDP.

"More research is needed to disentangle all the rich and complex interactions between demonetisation and its impact on the informal sector", the survey said.

The survey has also pointed out that during 2016-17, freight earnings at Rs 1, 04,339 crore, registered a negative growth of 4.5% over 2015-16.

Citing deflationary impulses, it stressed that farm revenues, decline in non-cereal food prices, loan waivers, fiscal tightening and declining profitability in the power and telecom sectors are weighing on the economy.

Drafted by Chief Economic Advisor Arvind Subramanian, the survey reflected strong growth in tax revenue, sustenance of the pace of capital spending and a consolidation of non-salary or pension revenue expenditure.

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Friday's survey noted that the economy is yet to gather its full momentum since a lot of factors such as the agricultural crisis, farm loan waivers and the bad loans problem in the banking sector continue to drag growth downwards. It said, "This growth suggested that the economy was relatively resilient to the large liquidity shock of demonetisation which reduced cash in circulation by 22.6% in the second half of 2016-17".

India's growth slowed to 6.1 percent in the fourth quarter ending March after Prime Minister Narendra Modi's shock move in November to remove almost 90 percent of the currency from circulation to crack down on tax evaders.

The Federation of Indian Chambers of Commerce and Industry (FICCI) urged for the need to enable a further cut down of policy rates by the Reserve Bank of India (RBI), to spur demand and help ease the pressure on corporate balance sheets.

"Cyclical conditions suggest that the policy rate should actually be below. the neutral rate".

As regards outlook for growth 2017-18, the Survey (Volume I) had forecast a range for real GDP growth of 6.75 per cent to 7.5 per cent for FY 2018.

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The current account deficit narrowed in 2016-17 to 0.7 per cent of GDP, down from 1.1 per cent of GDP the previous year, led by the sharp contraction in trade deficit.

His Survey stated that there was "considerable" scope for further easing in monetary policy as the repo rate was 25-75 basis above the neutral rate.

The survey mentioned that inflation is expected to remain below the RBI's four percent target through to the end of the fiscal year and described scope for monetary easing as "considerable".

The survey, however, noticed a rekindled optimism on structural reforms in Indian economy riding on various factors such as launch of the GST; Positive impacts of demonetization; decision in principle to privatize Air India; further rationalization of energy subsidies and Actions to address the Twin Balance Sheet (TBS) challenge.

Post-demonetisation, a new enforcement and compliance regime and increased digitalisation have reduced the use of cash for transactions, the survey said.

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