Budget 2017: Arun Jaitley tables Economic Survey

The participating economists opined that demonetization exercise would lead to a healthy correction in many sectors of the economy, especially in the real estate segment.

A day ahead before Finance Minister Arun Jaitley will present the Union Budget 2017, the government will on Tuesday, table the Economic Survey for 2016-17 in Parliament around noon. “The cash squeeze. will have significant implications for GDP, reducing 2016-17 growth by a quarter to half a percentage point compared with the baseline of 7%”, the survey said.

Stock of black money fell, as some holders came into the tax net. “Only then could the effects of demonetisation prove non-permanent in nature”, said the Survey.

Fixed investment (gross fixed capital formation) to GDP ratio (at current prices) is estimated to be 26.6 per cent in 2016-17, vis-à-vis 29.3 per cent in 2015-16.

Standard & Poor’s (S&P) and Moody’s, for instance, have not upgraded their ratings of India-from “BBB-‘ and ‘Baa3” respectively-despite its economy being one of the fastest growing globally.

“We should be cautious about assessing its impact”.

He cited difficulty in available macro-data in coming up with accurate analysis to project an impact of demonetisation, noting that India’s GDP collection methods will probably also “underestimate” the impact on the informal sector, which analysts believe has been hit severely by demonetisaion. “As remonetisation happens, the economy will be back on track”.

Cash-intensive sectors (agriculture, real estate, jewellery) were affected more. It could also be termed as a “report card” for the economy for the current financial year.

Arvind Subramanian: Last year, I said it’s the ideas for India and bettering India that matter. Any uncertainty from demonetisation needs to be addressed.

On the benefits side, early evidence suggests that digitalisation has increased since demonetisation.

Outlook for Consumer Price Index (CPI) inflation for the whole of 2016-17 is likely to be below the RBI’s target of 5%, stated the Economic Survey.

Reacting to the Survey, Congress said wrong policies of the Centre have created distress for the rural population. “The transaction has to be gradual”. This time we have scores of people who have contributed.

The Economic Survey proposes a moratorium on new government programmes and a commitment to evaluate and phase out existing programs that are not serving their goal. Finally, the Survey advocated the concept of Universal Basic Income (UBI) as a radical new vision towards a strategy of redistribution. “Demonetisation is also very unusual in its monetary consequences”.

Interest rates on deposits, loans, and government securities declined while the implicit rate on cash increased. The government can benefit out of old currency / unaccounted cash that did not return to the banking system. A clear plan of action with sustained reforms in each of these areas by the government is a must to attain sustained high and inclusive growth. The Survey points to a rather larger range of growth of 6.75-7.5% for FY18, indicating that there could be downside risks to growth emanating from global conditions of low growth and a reversal in the global oil prices.