Risks to growth: 

Risks to growth: 

Context:

• Five months after the Economic Survey 2016-17 was released, Chief Economic Adviser (CEA) Arvind Subramanian has presented the second volume of the annual economic review-cum-prognosticatory report.
• There was a clear need to update and refresh outcomes and forecasts due to recent policy developments, including the momentous roll-out of the Goods and Services Tax.

Highlight of the Report:

• While Volume I had projected the gross domestic product expansion in 2017-18 in a range of 6.75-7.5%, the CEA has taken cognisance of several new factors and observed that the balance of risks seem to have shifted to the downside with a far lower likelihood of growth being “closer to the upper end.
• On the impact of GST, the CEA has pointed out that besides its long-term structural benefits, the implementation of the GST would straightaway provide a short-term impetus by easing a cross-country logistics constraint following the removal of checkposts. However, the transitional challenges from the actual operation of the new indirect tax regime could retard growth momentum.
• The companies in the power and telecom sectors have to contend with the increasing stress to balance sheets.
• The CEA has stressed agriculture and farm income and recommended that the farm loan waivers and agricultural stress the growth outlook.
• CEA recommended that remunerative and stable support prices can help ensure that the risk of wild swings in the production and prices of farm produce is obviated, thus protecting both farmers and consumers.
• The survey posits that as part of the government’s remedial responses “policy must be driven by the recognition that, over longer horizons, there is no necessary opposition between farmer and consumer interests.
• The CEA recommend that the “time is also ripe to consider whether direct support to farmers can be a more effective way to boost farm incomes.
• Quick and considerable monetary easing by the RBI — with policy rates cut to about 4.25-5.25% from the current 6% — could help the economy approach full potential and aid in resolving the issue of stressed balance sheets.

Conclusion:

•  According to CEA, the outlook for growth in the current financial year has clearly turned more sombre.  The CEA has taken also considered the possible risks and noted that it is going to be hard to find a ‘magic bullet’ fix that encompasses most of the concerns.