India medium-term potential of 8%
As soon as the FM tabled the Economic Survey India Ratings & Research expressed their view. From India Ratings & Research Dr. Devendra Kumar Pant, Chief Economist said, “The Economic Survey 2017-18 provides an update on the status of India’s economy and advice from chief economic adviser and his team to the government. As per past trends, some advice may find a place in the budget.
The core of the survey, which everyone is looking at, is the 7.0%-7.5% growth projection for 2018-19. The survey suggests 2017-18 growth could go up to 6.75% (CSO estimate: 6.5%). Although an uptick in 2018-19 growth has not been ruled out, it is more likely towards the lower end of the range. Evolving domestic and global conditions can swing growth in any direction.
7.0%-7.5% real GDP growth, along with 3.5%-4.0% GDP deflator growth, leads to 10.7%-11.8% nominal GDP growth. The Union Budget arithmetic largely depends on nominal GDP growth, which was below 11.0% during 2014-15–2017-18.
The survey points out that growth could recover to medium-term potential of 8% by inflation control, reforms and buoyant global economy. Optimism to attain higher growth and inch towards medium-term potential of 8% emanates from the hope of revival of private investment through quick debt resolution and recapitalisation of the banks.
The survey however, stress for maintaining some degree of fiscal consolidation. The survey argues impact of interest rate on consumption. In the event of higher oil prices and inability to absorb by budget, the interest rate could rise and that will increase real interest rate and will have impact on consumption.
However, if oil prices remains range bound it will not call for monetary tightening and will lead to lower real interest rate and will have favorable impact on consumption. The survey also warns for setting over ambitious fiscal consolidation target and suggest for a gradual but steady fiscal consolidation.
The survey highlighted the priorities for inclusive and sustainable growth, and stressed on social infrastructure improvement. It pointed out that despite progress in the provision of clean cooking options to households, 64.0% population had no access to these options in 2015 (global average: 38%; China: 33%). Increased farm mechanisation benefits have not been fully realised due to a small holding size. The survey suggests land holding consolidation.”
