HIGHLIGHTS OF THE UNION ECONOMIC SURVEY 2016-17

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Union Finance Minister Arun Jaitley tabled the Economic Survey 2016-17, in the Parliament budget session. The survey was prepared by chief economic adviser in the finance ministry, Arvind Subramanian. The survey projects the economy to grow in the range of 6.75% to 7.25% in fiscal year 2017-18, in the post-demonetisation year. It says that the adverse impact of demonetisation on GDP growth will be transitional.

THE MAJOR HIGHLIGHTS ARE:-

Growth Forecast:-

  • Gross domestic product (GDP) growth in 2016-17 pegged at 6.5%, down from 7.6% in last fiscal 2015-16.
  • Economic growth to rebound from 6.75% to 7.5% in 2017-18. Farm sector to grow at 4.1% in 2016-17, up from 1.2% in 2015-16.
  • Growth rate of industrial sector estimated to moderate to 5.2% in 2016-17, from 7.4% in 2015-16.
  • Service sector is estimated to grow at 8.9% in 2016-17.
  • GST, other structural reforms should take the growth rate trend to 8-10%.

Taxation:-

  • Prescribes cut in individual Income Tax rates, real estate stamp duties.
  • IT 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.

Goods and Services Tax (GST):-

  • Fiscal gains from GST will take time to realise.
  • Rollout expected to cover pan-India by July 1, 2017.

Fiscal Deficit:-

  • Implementation of muted tax receipts, wage hike to put pressure on fiscal deficit in 2017-18.
  • For fiscal health of the economy, fiscal prudence for both centre and states is needed.
  • Fiscal windfall from low oil prices to disappear in 2017-18.

Inflation:-

  • The average consumer price index (CPI) inflation rate declined to 4.9% in 2015-16, from 5.9% in 2014-15.
  • CPI-based core inflation remained sticky, by around 5% in the 2016-17.
  • Oil prices, seen rising by one-sixth in 2017-18 over the previous fiscal 2016-17 prices, which could dampen India’s economic growth.

Monetary Policy:-

  • Monetary easing headroom may be capped, due to sharp rise in prices in 2017-18.
  • Market interest rates seen lower in 2017-18, due to demonetisation.

Government Debt to GDP ratio:-

  • It was 68.5% in 2016, down from 69.1% in 2015.

Banking:-

  • Suggests setting up a public sector asset rehabilitation agency (PSARA) to take charge of large bad loans in banks.
  • With government backing, PSAR can overcome coordination and political issues on bad loans.

Demonetisation:-

  • The adverse impact of demonetisation on GDP growth will be transitional.
  • It will affect growth rate by 0.25-0.5%, but will be having long-term benefits.
  • It may affect supplies of certain agricultural products like sugar, milk, potatoes and onions.
  • Remonetisation will ensure that the cash squeeze is eliminated by April 2017.

Universal Basic Income (UBI):-

  • Advocates the concept of UBI as an alternative to the various social welfare schemes in an effort to reduce poverty.
  • It will be alternative to plethora of state subsidies for poverty alleviation.
  • UBI would cost between 4-5% of GDP.
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