Published on 2/02/2017 6:03:26 PM | Source: A BDO India Publication
India Union Budget 2017 - A BDO India Publication
ECONOMIC INDICATORS
1. ECONOMIC INDICATORS
The FM presented the Economic Survey in the Parliament on January 31, 2017. The projected growth rate for fiscal year 2016-17 was 7.6%, however global events coupled with demonetization will pull down the growth rate below 7% of the GDP.
While the first half of the fiscal year looked range bound, clocking a growth of 7.2%, the second half has been a dampener. This was on expected lines since the impact of to demonetization has pulled back economic growth and is likely to show its impact in the near future. It is expected that once the currency is replenished, there would be a revival in the economy.
Considering that global growth rate is a mere 3%, India has still managed to perform well. Volatile crude prices and moderate CAD has played an important role. However domestic worries remain in the form of lower investment to GDP ratio and increasing crude prices, having consequent inflationary impact.
Amidst the above challenges, the growth rate for fiscal year 2017-18 has been estimated between 6.75% to 7.50%.
As per the first Advanced Estimates, the growth rate of (GVA) at constant basic prices for 2016-17 is placed at 7.0%, as against 7.2% in 2015-16. At the sectoral level, the improved monsoon gave a boost to agriculture and allied sectors. This sector grew at 4.1% as compared to 1.2% in the previous year. The industrial sector, however, moderated to 5.2% as against 7.4%.
Table showing growth in (GVA) at constant (2011-12) basic prices %
Fixed investment (gross fixed capital formation) to GDP ratio is estimated to be 26.6% per cent for the fiscal year 2016-17, vis-à-vis 29.3% for the fiscal year 2015-16. Fixed investment rate has been declining since 2011-12 and for revival of growth, reversal of this trend is a pre-requisite. The Government of India has been taking various initiatives for a creating a conducive environment through “Ease of Doing Business” and other welfare programs.
CPI has been within manageable range of 3.4% due to surplus agricultural produce, however, WPI has been on an uptrend due to rising crude prices. Fiscal deficit is proposed to be curtailed to the projected number of 3.5% of GDP.
2 FUTURE OUTLOOK
The impact of demonetization is currently prevalent and its shadow will hover around the Indian economy for the fiscal year 2017-18 as well. The Indian economy is largely cash dominant and expecting a cultural shift to digital economy is a daunting task. However, the implementation of GST and other structural reforms should aid in the recovery of the economy to negate the impact of demonetization.
The Indian exports have shown an upward trend based on the positive outlook of global economy. The International Monetary Fund has projected a global growth of 3.4% in 2017 vis-a-vis 3.1% in 2016. Consequently, Indian exports should contribute to higher growth next year. On the other hand, domestic consumption could have its own peril in the form of rising crude prices.
The Indian economy will also be impacted due to political tensions between major countries. This could reduce global growth and trigger capital flight from emerging markets.
The survey also proposes Universal Basic Income scheme for the poor. This is a substitute to various subsidy programs in place for the poor. One of the key problems with many programs is the lack of effectiveness due to misappropriation of funds. The Universal Basic Income scheme is to eliminate this leakage so that the funds rightfully reach the deserving population.
The country is going through challenging times in the wake of recent events, both globally & domestically. Effective implementation of key reforms and fiscal prudence should bolster the growth initiatives of the country.
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