Economic Survey pegs GDP growth at 7 – 7.75

475-economicsThe Economic Survey, tabled by Finance Minister Arun Jaitlely in Parliament today projected a 7-7.75 (rpt 7-7.75) per cent GDP growth rate in the next fiscal which could accelerate to eight per cent in a couple of years. It stressed the need to carry forward the reform process to achieve macro-economic stability.
It stated that Despite challenges and lower than projected GDP growth rate during 2015-16, “the fiscal deficit target of 3.9 per cent of GDP seems achievable.”

After a 7.2 per cent economic growth in 2014-15, it said the expansion in economy will be 7.6 per cent in the current fiscal, the fastest in the world.

However, it cautioned that if the world economy remained weak, India’s growth will face considerable headwinds.

On the domestic side, two factors can boost consumption, increased spending from higher wages and allowances of government workers if the 7th Pay Commission is implemented and return of normal monsoon.

At the same time, the Survey enumerated three downside risks – turmoil in global economy could worsen the outlook of exports, contrary to expectations oil price rise would increase the drag from consumption and the most serious risk is the combination of these two factors.

“One of the most critical short-term challenges confronting the Indian economy is the twin balance sheet problem – the impaired financial positions of the public sector banks and some corporate houses. The twin balance sheet challenge is the major impediment to private investment and a full-fledged economic recovery,” the Survey said

India should adopt a three-pronged strategy to achieve its long-term potential growth rate of around 8-10% by promoting competition and investing in health and education, while not neglecting agriculture, the Economic Survey 2015-16 tabled in Parliament on Friday said.

“First, India has moved away from being reflexively anti-markets and uncritically pro-state to being pro-entrepreneurship and skeptical about the state,” the survey said.

Second, the Survey calls for major investments in health and education of people to exploit India’s demographic dividend to optimal extent. Third, it says that India cannot afford to neglect its agriculture,” the survey said.

The survey pointed out that the upcoming budget and future economic policy will have to contend with an unusually challenging and weak external environment. It suggests that one tail-risk scenario that India must plan for is a major currency re-adjustment in Asia in the wake of a similar adjustment in China. Another could be the consequence of policy actions, such as capital controls, taken to respond to outflows from large emerging market countries, which would further moderate growth. The survey says that in either case, foreign demand is likely to be weak, which requires the country to find and activate domestic sources of demand to prevent the growth momentum from weakening.

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