The Economic Survey was tabled in the Parliament by finance minister Arun Jaitley. Photograph:( Reuters )
India's economic growth has been pegged at 6.5 per cent for the current fiscal, down from 7.6 per cent recorded in the last financial year, but is expected to rebound in the range of 6.75-7.5 per cent in 2017-18.
The Economic Survey for 2016-17, tabled in the Parliament by finance minister Arun Jaitley underlined the need for more reforms.
Retail inflation is likely to be well below RBI's target of 5 per cent in the current fiscal as demonetisation would discourage any price headwind, the Economic Survey for 2016-17 said. The new inflation targeting approach by the Monetary Policy Committee (MPC) and gains from macro-economic stability will help India consolidate gains on price control, meaning prices will be less susceptible of individual whims and caprice of governments, the survey said.
The survey's GDP growth figure for the current fiscal is lower than 7.1 per cent the Central Statistics Office had forecast earlier this month.
The survey lists some of the challenges that might impede India's progress. These include ambivalence about property rights and the private sector, deficiencies in state capacity, especially in delivering essential services and inefficient redistribution.
The survey highlights difficulties in privatising public enterprises, even for firms where economists have made strong arguments that they should be in the private sector.
In this context, it pointed towards the need to further privatise civil aviation, banking and fertiliser sectors. The survey stated that the capacity of the state in delivering essential services such as health and education is weak due to low capacity, with high levels of corruption, clientelism, rules and red tape.
At the level of states, competitive populism is more in evidence than competitive service delivery, it added. Constraints to policy making due to strict adherence to rules and abundant caution in bureaucratic decision-making favours status quo, it cautioned.
According to the survey, redistribution by the government is far from efficient in targeting the poor. This is intrinsic to current programmes because spending is likely to be greatest in states with better institutions.
It noted that over the past two years, the government has made considerable progress towards reducing subsidies, especially related to petroleum products. Technology has been the main instrument for addressing the leakage problem and the pilots for direct benefit transfer in fertiliser represent a very important new direction in this regard, it said.
Noting that India has come a long way in terms of economic performance and reforms, the survey said there is still a journey ahead to achieve dynamism and social justice and completing this journey will require broader societal shifts in the underlying vision.
Highlights of the Economic Survey
* GDP growth for next fiscal pegged at 6.75-7.5 per cent
* Growth this fiscal to be 6.5 per cent.
* Prescribes cut in individual I-T rates, real estate stamp duties.
* Income Tax net could be widened gradually by encompassing all high income earners.
* Time table for cutting corporate tax should be accelerated.
* Tax administration could be improved to reduce discretion and improve accountability.
* Growth to return to normal as new currency comes in circulation.
* Demonetisation to affect growth rate by 0.25-0.5 per cent, but to have long-term benefits.
* GST, other structural reforms should take the trend growth rate to 8-10 per cent.
* Fiscal windfall likely from Pradhan Mantri Garib Kalyan Yojana, low oil price.
* Farm sector to grow at 4.1% this fiscal, up from 1.2% last year.
* Fiscal gains from GST will take time to realise.
* Demonetisation may affect supplies of certain agricultural products like sugar, milk, potatoes and onions.
* Growth rate of industrial sector to moderate at 5.2% this fiscal, from 7.4% last fiscal.
* Efforts to collect taxes on disclosed and undisclosed wealth should not lead to tax harassment.
* Universal Basic Income Scheme is an alternative to plethora of state subsidies for poverty alleviation.