India will grow at 6.75-7.5 percent in 2017-18, the Economic Survey 2016-17 said in a guarded forecast on Tuesday, tempering expectations of an early revival in the broader economy still reeling under the effects of demonetisation.
“Demonetisation will have both short-term costs and long-term benefits,” the annual Economic Survey 2016-17 tabled in Parliament on Tuesday said. “Briefly, the costs include a contraction in cash money supply and subsequent, albeit temporary, slowdown in GDP growth; and benefits include increased digitalization, greater tax compliance and a reduction in real estate prices, which could increase long-run tax revenue collections and GDP growth,” it said.
Data released at the beginning of the month showed that the economy will likely grow at 7.1 percent in 2016-17, 0.5 percentage points slower than the previous year’s 7.6 percent expansion, underlining fears of an economy-wide cash-crunch due to demonetisation. Projections were based on incomplete output and corporate income data, amid signs of faltering investment and weak consumer spending, leading to fears that the actual numbers could be worse. The Economic Survey, authored by Chief Economic Adviser Arvind Subramanian and his team, also strongly advocated the roll-out of a universal basic income (UBI) scheme for the poor in India, an ambitious plan involving direct money transfers to families’ bank accounts. It hinted at greater flexibility in fiscal deficit targets to allow for greater government spending to pump-prime the economy, cautioned against rising crude prices, and obliquely observed that Parliamentary disruptions were delaying critical reforms initiatives.
These contractionary effects will dissipate by year-end when currency in circulation should once again be in line with estimated demand, which would also allow growth to converge to a trend by 2017-18, it said. CONTAINING DEFICIT The Survey also called for a moving to a new public debt management roadmap, setting the stage for a significant shift in a decade-long policy practice where the government was required, by law, to pursue a rigid borrowing target over a three-to-five year period. “Even as the basic tenets of the Fiscal Responsibility and Budget Management (FRBM) remain valid, the operational framework designed in 2003 will need to be modified for the fiscal policy direction of India of today, and even more importantly the India of tomorrow.