Economic Survey-Volume II- Chapter 1 - Part 3 (1)Procedural Reforms introduced in Union Budget...

Chapter1

VolumeII

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Chapter 1Introduction

SectionA.AnalyticalreviewofrecentdevelopmentTheGoods&ServicesTax

ParadigmShifttoLowInflationWedgebetweenassetprice&realeconomyFarmLoanWavers- MacroEconomicImpact

Demonetization:LongTermBenefits&ShortTermCostSectionB.Outlook&policiesfor2017-18

SectionC:ReviewofDevelopmentin2016-17

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Review of Developments in

2016-17

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1.GDP• AccordingtoCSOMay2017estimatesrealGDPgrewby7.1%in2016-17incomparisonto8%inpreviousyear.

• ThisperformancewashigherthantherangepredictedinVolumeI.

• Itsuggestedthateconomywasmoreresilienttothelargeliquidityshockofdemonetization.

• ThisresilienceismoreapparentinnominalGDPandGVAwhichacceleratedbyalmost1%morein2016-17thanto2015-16.

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GDP• DespiteofresiliencethelatestGDPfiguresraisedquestionsongrowth

trajectoryduringthecourseFY2017.• RealGDA&GVAgrowthdeclinedforfourconsecutivequarters.• ThegrowthinCoreGVA(TotalGVAexcludingagriculture,defenceandother

services)deceleratedby3.6%fromFY2016toFY2017.• ManufacturingGVAgrowthstarteddecliningfromQ4FY2016.• ThegrowthinrealfixedinvestmentwaslowsincethesecondhalfofFY2013

anddeclinedsteeplyafteratemporaryspurtinthesecondhalfofFY2016• AsperSurveycalculationsprivateinvestmentgrowthisestimatedtobe

negativein2016-17.• Theonlydemandboostcamefromconsumption,whichaccountedforabout

96percentofGDPgrowthinFY2017.

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2.Inflation• TheIndianeconomyhasgonethroughadramatictransitionfromhightolowinflation.

• AnnualInflationaveragedfrom5.9%in201-15andhasdeclinedto4.5%inFY2017.

• Inflationdeclinesharplyfrom6.1%inJuly2016to1.5%inJune2017pertainingtogrowthdeceleration.

• FoodinflationhadhardenedduringthefirstfewmonthsofFY2017duetoupwardpressureonprices,mainlyofpulsesandvegetables,butsoftenedsubsequentlywithimprovementinseasonalavailabilityandparticularlyafterdemonetization.

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2.Inflation

• HeadlineCPIinflationhasnowbeenbelowtheRBI’s2017targetfortenconsecutivemonthsbyabout1.7percentagepointsonaverage.

• Notonlyheadlinebutrefinedcoreinflation—whichstripsoutagricultureandoilaswellastheoil-componentintransportationservices— declinedsteadilyfromover5percentinJune2016to3.9percentinJune2017.

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2.Inflation

• AsharpdeclineinWPIinlateFY2015andthroughoutFY2016owedtothedecelerationinglobalcommodityprices,especiallycrudeoilprices.

• Withglobalcommoditypricesrecoveringandthe‘baseeffect’(lowinflationinthepreviousyear)givinganupwardpush,wholesaleinflationperkedupduringFY2017.

• Thevastdivergencebetweentheretailandwholesaleinflationhasnowbeeneliminated.

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3.ExternalSector

• Withthegreenshoots slowlybecomingvisibleinmerchandisetrade,androbustcapitalflows,theexternalpositionappearsrobust,reflectedinteraliainrisingreserves andastrengthening

exchangerate.

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3.ExternalSector

• Thecurrentaccountdeficitnarrowedin2016-17to0.7percentofGDP,downfrom1.1percentofGDPthepreviousyear.

• Exportgrowthturnedpositiveafteragapoftwoyearsandimportscontractedmarginally,sothatIndia’stradedeficitnarrowedto5.0percentofGDPinFY2017ascomparedto6.2percentinthepreviousyear.

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3.ExternalSector

• TheCapitalAccountsurplusexceedingthecapitalaccountdeficitresultedinincreaseinaccumulationofforeignreserves.

• Asaresultofabovereservebasedexternalsectorvulnerabilityindicatorshasimproved.

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4.FiscalDevelopment

• ThegovernmentadheredtoFiscalDeficittargeteventhough:• TherewasexpenditurecompulsionofSeventhPayCommissionandOROPimplementation.

• Spectrumauctionanddisinvestmentreceiptfallshortofthetargets.

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CPSE – CentralPublicSectorEnterprise(CIL,SAIL,BHEL,GAILetc)RE – RevisedEstimateBE- BudgetedEstimate

4.FiscalDevelopment

• Overall,thefiscaloutcomeoftheCentralGovernmentinFY2017wasmarkedbyrobustgrowthintaxrevenue andthemajorsourcesare:• ExciseDutyonpetroleumproducts(2/3ofgrowthofexcise

collection)• Buoyantcollectionofexcisedutyandservicetaxisobservedbymobilizingadditionaltaxresources.

• Swach BharatCess &Krishi Kalyan Cess (1/3ofgrowthinservicetaxcollection)

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4.FiscalDevelopment

• FiscalDeficitsofStatesdetrioted duetoincreasedDISCOMliabilityundertheUDAYprogramme.

• DuringFY2016fiscaldeficitofstatesincreasedby1%.

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4.FiscalDevelopment

ProceduralReformsintroducedinUnionBudget2017-18:1. RailwayBudgetwasintegratedwithUnionBudgetbringingrailwayfinancein

mainstream.2. ThedateoftheUnionBudgetwasadvancedtoFebruary1,almostbyamonth,

tohelpCentralministriesandStategovernmentsplanandspendtheirfullbudgetfromthebeginningofthefinancialyear.

3. theclassificationofexpenditureinto‘plan’and‘non-plan’waseliminatedtoallowfocusonthemoreeconomicallymeaningfulcapital-revenuedistinction.

4. TheMediumTermExpenditureFrameworkStatementwasrestructuredtogiveprojectedexpenditures(revenueandcapital)foreachdemandforthenexttwofinancialyears.

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