Economic Survey: Volume-2

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Bikky Khosla | 16 Aug, 2017
The Economic Survey 2016-17: Volume-2, released by the Department of Economic Affairs last week, came out with some valuable insights for economy watchers. On the bright side, it mentions about a 'rekindled optimism' on structural reforms, driven by launch of GST, positive impacts of demonetisation, rationalization of energy subsidies and actions to address the twin balance sheet challenge. However it has raised red flag over 'deflationary impulses' weighing on the economy, rising from factors like stressed farm revenues, farm loan waivers and fiscal tightening they will entail and power and telecommunication sector worries.

Overall, the growth outlook presented by the second version of the survey is more subdued than the first one, but it sounds less worrying and more normal. Initially GDP growth was pegged at 6.75 percent to 7.5 percent for 2017-18, on the expectations of global recovery, a post- demonetisation catch-up in consumption and monetary easing after demonetization, but since then a number of new factors -- real exchange rate appreciation, agricultural stress, farm loan waivers, increased balance sheet stress in power and telecommunications sectors, implementation of GST -- have appeared, and the survey rightly takes them into account.

Elaborating the 'deflationary impulses', the survey sounds specifically concerned about the adverse effects of farm loan waivers -- an issue we have raised time and again over the last few weeks. It pegs the likely magnitude of the already announced waivers at Rs 1.25 lakh crore. Similarly, the survey also points to a 'agriculture puzzle' -- reduced farm revenues in non-cereal crops despite good monsoon and the transitional challenges from implementing the GST. These issues too have no less been discussed recently, but now with the flagship document of the finance ministry itself raising concern, I hope our policy makers will strain their nerves to tackle these challenges.

But the survey is -- despite its warning bells on growth and fiscal slippage -- by no way all about negatives. Instead, it sounds highly optimistic on ongoing reforms, including GST leading to expansion of the tax base, effective handling of the twin balance sheet challenge by the Centre and the RBI, further rationalization of energy subsidies and decision to privatize Air India, etc. Additionally, it views that factors like demonetisation, exuberance in financial market, scope for monetary easing, exports recovery and robust capital flows should augur well for the economy. So, there is light ahead though at the end of the tunnel.

I invite your opinions.