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India Cautioned Over Risks to Projected Growth
India Cautioned Over Risks to Projected Growth

India Cautioned Over Risks to Projected Growth

India Cautioned Over Risks to Projected Growth

There are downside risks to India’s projected growth of 6.75-7.5% growth in 2017-18, the finance ministry’s Mid-Term Economic Survey said on Friday in a guarded forecast, indicating that multiple pain points continue to hinder growth in the broader economy amid an uncertain fiscal outlook.
The second part of the Economic Survey for 2016-17, which, besides giving an overview of India’s economy, was also critical about ad hoc state-sponsored farm loan write-offs to deal with rural distress, moneycontrol reported.
It also argued in favor of interest rate cuts to aid economic revival—a stand that may run counter to the Reserve Bank of India’s steadfast position ignoring calls for further lending rate cuts despite persistently low inflation.
The first part of the survey presented in January had projected that the Indian economy would grow by 6.75-7.5% in 2017-18. The fiscal outlook for 2017-18 is still uncertain, it said, while deflationary impulses continue to weigh on the economy.
It said that retail inflation will likely be below 4% by March, well within the RBI’s tolerable range. According to the Economic Survey, authored by Chief Economic Adviser Arvind Subramanian and his team, the repo rate—the rate at which banks borrow from the RBI—is currently  25-75 basis points (0.25 to 0.75 percentage points) above neutral, signaling the government’s view that it wanted the central bank to cut rates further.
Earlier this month, the RBI cut the repo rate by 25 basis points (0.25 percentage points) to 6%, triggering hopes of lower borrowing costs for households and the companies ahead of the festival season.
The six member monetary policy committee, headed by new RBI governor Urjit Patel, however, hinted about lurking inflation risks in the near to medium term. It also flagged concerns about the deceleration in services and industry, placing the onus on the center and state governments to hasten project approvals and aid private investment.
The survey, however, said that RBI has overestimated the consumer price index by 100 basis points in six to 14 quarters. Inflation rates have slowed to record lows and food prices have been falling. Consumer price index—commonly referred to as retail inflation that the RBI tracks—moderated sharply to 1.54% in June, the lowest since the index was rebased to 2012 in a new data series.
While the recently handed out enhanced house rent allowance for central government employees may push up inflation by 40-100 basis points, the economy lags dynamism to push inflation beyond 4%, the survey said.
The survey also said that farm loan waivers could cut overall demand in the economy by 0.7%. A string of state government-sponsored farm debt waivers that have drawn criticism from professional economists and the RBI will be keenly watched.

 

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