India GDP

Chief Economic Adviser Arvind Subramanian presents the Economic Survey 2017-18 in New Delhi Jan. 29. (IANS photo)

NEW DELHI — Analyzing all facets of development and reform, India's Economic Survey for 2017-18 has pegged the country's growth at 6.75 percent for the current fiscal and 7 to 7.5 percent for 2018-19, while cautioning that the increase in crude oil prices in the international market may dampen the spirit.

"A series of major reforms undertaken over the past year will allow real GDP growth to reach 6.75 percent this fiscal and will rise to 7 to 7.5 percent in 2018-19, thereby re-instating India as the world's fastest growing major economy," the survey said here Jan. 29.

The survey, tabled in parliament by Finance Minister Arun Jaitley Jan. 29, also said the reform measures undertaken in 2017-18 can be strengthened further in 2018-19.

The survey underlined that the economy began to accelerate in the second half of the year and can clock 6.75 percent growth this fiscal due to the launch of transformational Goods and Services Tax reform July 1, 2017, and the new Indian Bankruptcy Code, which resolves the long-festering Twin Balance Sheet issue by now sending major stressed companies for resolution under the new code.

It also said implementing a major recapitalization package to strengthen public sector banks, further liberalizing foreign direct investment and the export uplift from the global recovery had played a major role in boosting the growth.

"Looking at the achievements of the past year, the launch of the transformational GST was certainly the major one," Chief Economic Advisor Arvind Subramanian told reporters here, referring to the single national tax that replaced the earlier multiple central and state taxes from July 1.

"There were bound to be teething challenges with such a major reform and midcourse corrections were taken," he said.

"If you look at the last four quarters, you will see that manufacturing export growth is about 11.3 percent, which is very healthy and broadly in line with where the world economy is going," the CEA added.

"The economy will start reaping benefits of these reforms in the next fiscal year and we look forward to continuity in the reforms process displayed by the "government," said Rashesh Shah, president, Federation of Indian Chambers of Commerce.

The survey numbers boosted the Indian equity indices – Sensex and Nifty – which touched record highs Jan. 29.

The survey pointed out that, as per the quarterly estimates, there was a reversal of the declining trend of GDP growth in the second quarter of 2017-18, led by the industry sector.

"The Gross Value Added at constant basic prices is expected to grow at the rate of 6.1 percent in 2017-18 as compared to 6.6 percent in 2016-17. Similarly, agriculture, industry and services sectors are expected to grow at the rate of 2.1 percent, 4.4 percent, and 8.3 percent respectively in 2017-18."

It said that India can be rated as one of the best performing economies in the world as the average growth during last three years is around 4 percentage points higher than global growth and nearly 3 percentage points higher than that of emerging markets and developing economies.

The survey said headline inflation measured by the Consumer Price Index has remained under control for the fourth successive year, which "has been possible due to good agricultural production coupled with regular price monitoring by the government."

The survey cautioned that certain factors could dampen GDP growth in the coming year,  such as the possibility of an increase in crude oil prices in the international market.

"In the last three fiscal years, India experienced a positive terms of trade shock. But in the first three quarters of 2017-18, oil prices have been about 16 percent greater in dollar terms than in the previous year. It is estimated that a $10 per barrel increase in the price of oil reduces growth by 0.2-0.3 percentage points, increases WPI inflation by about 1.7 percentage points and worsens the CAD (current account deficit) by about $9-10 billion dollars," the survey said.

Subramanian added: "If oil prices remain at current levels, I think there will be challenges. So I think we need to watch oil prices very carefully. That's a risk. Also, sharp corrections to elevated stock prices is another risk we should be watchful of."

It highlighted that against the emerging macroeconomic concerns, policy vigilance will be necessary in the coming year, especially if high international oil prices persist or elevated stock prices correct sharply provoking a "sudden stall" in capital flows.

"The agenda for the next year consequently remains full: stabilizing the GST, completing the TBS actions, privatizing Air India, and staving off threats to macro-economic stability."

The CEA added that if the Insolvency and Bankruptcy Code process progresses well and expeditiously – and if actions happen on time and are accepted without glitches – then there is a chance that private investment will pick up again "after so many years of languishing."

The survey said that there was an increase in the number of taxpayers post-demonetization.

"... Taking seasonality into account it is found that there is a 0.8 percent monthly trend increase in new tax filers (annual growth of 10 percent)," the survey report said.

"The level of tax filers by November 2017 was 31 percent greater than what this trend would suggest, a statistically significant difference. This translates roughly into about 1.8 million additional tax payers due to demonetization-cum-GST, representing 3 percent of existing taxpayers." 

It said India's foreign exchange reserves reached $409.4 billion at end-December 2017. Foreign exchange reserves grew by 14.1 percent on a year-on-year basis from end December 2016 ($358.9 billion) to end December 2017 and it grew by 10.7 percent from end-March, 2017 ($370.0 billion) to end December 2017. Foreign exchange reserves increased further to $413.8 billion Jan. 12, 2018.

The import cover of India's foreign exchange reserves was 11.1 months at end September 2017 as compared with 11.3 months at end-March 2017, revealed the survey.

"Within the major economies running current account deficit, India is among the largest foreign exchange reserve holders and sixth largest among all countries of the world," it added.

The Economic Survey 2017-18 has emphasized that apart from the usual geo-political and geo-economic risks, the main risks lying on the macro-finance front in advanced economies stem from three inter-related sources – asset valuations, interest rates and bond and equity prices.

The survey said the outlook for 2018-19 will be determined by economic policy in the run-up the next national election. "If macroeconomic stability is kept under control, the ongoing reforms are stabilized, and the world economy remains buoyant as today, growth could start recovering towards its medium term economic potential of at least 8 percent."

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