7 - 7.75% growth in 2016-17: Key Highlights of the Economic Survey 2016

Dear Professional Colleague,

7 - 7.75% growth in 2016-17: Key Highlights of the Economic Survey 2016

Ahead of the Union Budget 2016, the Hon’ble Finance Minister Shri Arun Jaitley tabled today Economic Survey Report 2016 in the Parliament, outlining the broad direction of the Union Budget 2016 and the economic performance of the Country.

A flagship annual document of the Ministry of Finance, Economic Survey reviews the developments in the Indian economy over the previous 12 months, summarizes the performance on major development programmes, and highlights the policy initiatives of the Government and the prospects of the economy in the short to medium term.

Economic Survey 2016 termed external environment as challenging but projected a 7-7.5% GDP growth rate in the next fiscal which could accelerate to 8% in a couple of years.

“One of the most critical short term challenges confronting the Indian economy is the twin balance sheet problem - the impaired financial positions of the public sector banks and some corporate houses. The twin balance sheet challenge is the major impediment to private investment and a full-fledged economic recovery,” the Survey said.

The Economic Survey 2016 has also expressed concern over approval of Goods and Services Tax Bill being elusive so far.

We are sharing with you the key highlights of the Economic Survey 2016:

Economic Outlook, Prospects and Policy Challenges: With reforms in key areas, there is reduction in Macro-Vulnerability today

• Rates of 8% or Higher Expected in the next couple of years as there is Macro-Economic Stability now;
• India must plan for major currency readjustment in Asia;
• Expecting continued good performance by Industrial, Corporate & Infrastructure Sectors due to recent reforms;
• Indian equity market relatively resilient compared to other major emerging market economies;
• Better off taking the benefit of subsidies; recommends interventions and rectification;
• Spread JAM (Jan Dhan Yojana, Aadhaar, Mobile) across economy to improve lives of poor;
• Making investments in maternal nutrition and sanitation and changing social norms to enhance their effectiveness can help to exploit the country's demographic dividend;
• Economy will continue to weather global sluggishness with resilience; outlook of multilateral institutions positive for India

Fiscal Deficit

• 2016-17 expected to be challenging from fiscal point of view; time is right for a review of medium-term fiscal framework;
• 2015-16 fiscal deficit, seen at 3.9% of GDP, seems achievable;
• Credibility and optimality argue for adhering to 3.5% of GDP fiscal deficit target.

Inflation

• CPI inflation seen around 4.5 to 5% in 2016-17;
• Low inflation has taken hold, confidence in price stability has improved;
• Expect RBI to meet 5% inflation target by March 2017;
• Prospect of lower oil prices over medium term likely to dampen inflationary expectations
• 7th pay commission recommendations not likely to destabilise prices; to have little impact on inflation.

Current Account Deficit

• 2016/17 current account deficit seen around 1-1.5% of GDP.

Currency

• Rupee's value must be fair, avoid strengthening; fair value can be achieved through monetary relaxation
• India needs to prepare itself for a major currency readjustment in Asia in wake of a similar adjustment in China;
• Rupee's gradual depreciation can be allowed if capital inflows are weak.

Taxes

• Tax revenue expected to be higher than budgeted levels in 2015-16;
• Proposes widening tax net from 5.5% of earning individuals to more than 20%;
• Survey says that the promise to reduce corporate tax to 25% from 30% should be recalled
• Favours review and phasing out of tax exemptions; easiest way to widen the tax base not to raise exemption thresholds;
• GST rollout to mark an unprecedented reforms measure in the modern global tax history.

Banking & Corporate sector

• Estimated capital requirement for banks likely around 1.8 trilion rupees by 2018-19;
• Corporate, bank balance sheets remain stretched, affecting prospects for reviving private investments;
• Underlying stressed assets in corporate sector must be sold or rehabilitated;
• Government could sell off certain non-financial companies to infuse capital in State-run banks;
• Government proposes to make available 700 billion rupees via budgetary allocations during current and succeeding years in banks.

Agriculture and food management

• India ranks first in Milk production, accounting for 18.5% of world production;
• India recording a growth of 6.26 % whereas World Milk production increases by 3.1%;
• Egg and fish production has also registered an increasing trend over the years;
• Fertiliser subsidy should shift to direct cash transfer;
• Agriculture sector needs a transformation to ensure sustainable livelihoods for the farmers and food security;
• Percentage share of horticulture output in agriculture is more than 33%.

Services sector

• Services sector remains the Key Driver of Economic Growth contributing almost 66.1% in 2015-16;
• Growth in the services sector moderated slightly, but still remains robust.
• Emphasized the importance of improving efficiency in delivery of services in the health sector;
• Need for more investment in human capital, concerned over declining educational outcomes;
• There has been a rising trend in FDI equity inflows to the services sector in the first seven months of 2015-16 with FDI inflows growing by 74.7%.

Power sector

• Impressive strides made in the power sector in the last two years;
• 2014-15 marked the highest ever increase in generation capacity: 26.5 GW, much higher than the average annual addition of around 19 GW over the previous five years;
• Capacity enhancements have brought down the peak electricity deficit to its lowest ever level of 2.4%;
• Renewables have received a major policy push. Targets have been revised from 32 Gigawatts to 175 Gigawatts by 2022;
• Time is ripe to allow industries with higher power demands to absorb excess generation capacity through “Open Access” to energize “Make in India”;
• A progressive tariff structure can reduce costs for the poor without unduly burdening the rich.

To view the complete Report of Economic Survey 2016, please click on the link below:

http://indiabudget.nic.in/

Hope the information will assist you in your Professional endeavours. In case of any query/ information, please do not hesitate to write back to us.