Union finance minister Arun Jaitley on Tuesday tabled the Economic Survey 2016-17 in Parliament budget session. The survey projects the economy to grow in the range of 6.75% to 7.25% in the next fiscal year 2017-18 in the post-demonetisation year.
Government should review its medium-term fiscal strategy, Economic Survey recommended on Friday, an indication of the challenge Finance Minister Arun Jaitley faces to raise pay for government employees and bail out banks without increasing borrowing.
The survey prepared by chief economic adviser in the finance ministry Arvind Subramanian said the adverse impact of demonetisation on GDP growth will be transitional. The Economic Survey 2016-17 advocates the concept of Universal Basic Income (UBI) as an alternative to the various social welfare schemes in an effort to reduce poverty.
Following are the highlights of the report:
- 2016-17 expected to be challenging from fiscal point of view; time is right for a review of medium-term fiscal framework.
- 2015-16 fiscal deficit, seen at 3.9 per cent of GDP, seems achievable.
- Credibility and optimality argue for adhering to 3.5 per cent of GDP fiscal deficit target.
- CPI inflation seen around 4.5 to 5 per cent in 2016-17.
- Low inflation has taken hold, confidence in price stability has improved.
- Expect RBI to meet 5 per cent inflation target by March 2017.
- Prospect of lower oil prices over medium term likely to dampen inflationary expectations.
CURRENT ACCOUNT DEFICIT
- 2016-17 current account deficit seen around 1-1.5 per cent of GDP.
- Rupee’s value must be fair, avoid strengthening; fair value can be achieved through monetary relaxation.
- India needs to prepare itself for a major currency readjustment in Asia in wake of a similar adjustment in China.
- Rupee’s gradual depreciation can be allowed if capital inflows are weak.
BANKING & CORPORATE SECTOR
- Estimated capital requirement for banks around 1.8 trillion rupees by 2018-19.
- Proposes to make 700 billion rupees available via budgetary allocations during current and succeeding years in banks.
- Government could sell off certain non-financial companies to infuse capital in state-run banks.
- Corporate, bank balance sheets remain stretched, affecting prospects for reviving private investments.
- Underlying stressed assets in corporate sector must be sold or rehabilitated.
- Tax revenue expected to be higher than budgeted levels in 2015-16.
- Proposes widening tax net from 5.5 per cent of earning individuals to more than 20 per cent.
- Favours review and phasing out of tax exemptions; easiest way to widen the tax base not to raise exemption thresholds.
CHIEF ECONOMIC ADVISER COMMENTS
- Subramanian says there is scope for easing monetary policy.
- Says expenditure planning needs to be embedded in medium-term fiscal framework.
- Calls for liquidity to be injected into the financial system.
About Economic Survey
It’s a flagship annual document of the Ministry of Finance, Government of India, Economic Survey 2016–17 reviews the developments in the Indian economy over the previous 12 months, summarizes the performance on major development programmes, and highlights the policy initiatives of the government and the prospects of the economy in the short to medium term. This document is presented to both houses of Parliament during the Budget Session.
With detailed statistical data covering all aspects of the economy—macro as well as sectoral—the report provides an overview of the following issues:
- Economic Outlook and Policy Challenges
- The Economic Vision for Precocious, Cleavaged India
- Demonetization: To Deify or Demonize?
- The Festering Twin Balance Sheet Problem
- Fiscal Framework: The World is Changing, Should India Change Too?
- Fiscal Rules: Lessons from the States
- Clothes and Shoes: Can India Reclaim Low Skill Manufacturing?
- Review of Economic Developments
- Universal Basic Income: A Conversation With and Within the Mahatma
- Income, Health and Fertility: Convergence Puzzles
- One Economic India: For Goods and in the Eyes of the Constitution
- India on the Move and Churning: New Evidence
- The “Other Indias’: Two Analytical Narratives (Redistributive and Natural Resources) on States’ Development.
- From Competitive Federalism to Competitive Sub-Federalism: Cities as Dynamos