Union Minister Arun Jaitley Monday tabled the economic survey 2017-18 in Lok Sabha. The survey, authored by Chief Economic Adviser Arvind Subramanian, projected a GDP growth of 7 to 7.5 per cent in the financial year 2018-19.
The survey notes that three areas of policy focus stand out. They are employment, education and agriculture. “Above all, India must continue improving the climate for rapid economic growth on the strength of the only two truly sustainable engines—private investment and exports,” it said.
Here are charts which explain the state of the economy.
Increase in taxpayers:
One of the stated aims of demonetisation and the Goods and Services Tax (GST) was to bring more Indians under the income tax net. An analysis of the first 13 months after demonetisation showed that the number of new tax filers substantially increased in comparison to the previous six years.
“After November 2016, 10.1 million filers were added compared with an average of 6.2 million in the preceding six years,” the Economic Survey noted.
Further analysis of the data showed that many of the new filers reported an average income close to the tax threshold of Rs 2.5 lakh. Tax collections should rise over time as an increase in income will push many over the threshold, the survey said.
In the global scheme of things, India’s GDP growth had been accelerating until early 2016 when growth in other countries was decelerating. The opposite had happened later on as the world economy recovered and India’s faltered. The Economic Survey listed five key reasons that pushed India to decouple from the global growth and chart its unique path.
First, the tightening of monetary conditions, i.e increase in policy interest rates, depressed consumption and investment in comparison to other countries. It attracted capital inflows which, in turn, led to the strengthening of the rupee. This dampened both net services exports and the manufacturing trade balance.
The second and third factors were demonetisation and GST. The note ban reduced demand and hampered production, especially in the informal sector which transacts mainly in cash. The introduction of GST affected supply chains as small traders struggled to comply with the paperwork involved. This impacted large manufacturing companies which relied on the small traders for the supply of raw material. It also notes that the effects of demonetisation and GST are receding as services export and private remittances are on the rebound.
The fourth is the cumulative effects of non-performing assets. “The financial situation of stressed firms and banks have steadily worsened,” the survey said. The profits of public sector banks dipped due to the substantial increase in bad loans. “This, in turn, has impaired banks’ ability to supply credit to the industry.”
The final factor was oil prices. “In the last three fiscal years, India experienced a positive terms of trade shock. But in the first three quarters of 2017-18, oil prices have been about 16 percent greater in dollar terms than in the previous year. It is estimated that a $10 per barrel increase in the price of oil reduces growth by 0.2-0.3 percentage points, increases WPI inflation by about 1.7 percentage points and worsens the CAD by about $9-10 billion dollars,” the survey said.
The survey notes that rural demand is on the path to recovery, though not fully back to its pre-demonetisation trend. The demand, quantified by the sale of cars and motorcycles in last few quarters, showed a sharp dip in the month high denomination notes were scrapped. While motorcycles sales have strengthened, the sale of cars appears to be sluggish.
On the agricultural front, the survey, citing numbers provided by the Labour Bureau, said rural wages (agriculture and non-agriculture) increased because of the strong monsoon. The wages, however, decelerated just before the kharif season. This was because sowing of seeds has been lower in both kharif and rabi seasons thus reducing the demand for labour.
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