{"id":35535,"date":"2018-10-31T18:03:57","date_gmt":"2018-10-31T12:33:57","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=35535"},"modified":"2018-10-31T18:03:57","modified_gmt":"2018-10-31T12:33:57","slug":"cause-for-caution-not-gloom","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/cause-for-caution-not-gloom\/","title":{"rendered":"Cause for caution, not gloom\u00a0"},"content":{"rendered":"<p><a href=\"http:\/\/www.thehindu.com\/opinion\/lead\/cause-for-caution-not-gloom\/article19519760.ece\"><span style=\"font-weight: 400;\">Cause for caution, not gloom\u00a0<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><\/a><b><\/b><\/p>\n<p><b>Context:<\/b><\/p>\n<p><span style=\"font-weight: 400;\">The Economic Survey volume II cautions policymakers of \u00a0a possible deflationary cycle.<\/span><\/p>\n<p><b>Growth rate:<\/b><\/p>\n<p><span style=\"font-weight: 400;\">On the growth rate, while adhering to the forecast in Volume 1 for real GDP growth rate of 6.75%-7.5% this year, it suggests that the balance of risk has shifted to the downward side of the range.<\/span><\/p>\n<p><b>Key points:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Just one day prior to the Economic Survey, the Finance Minister presented to Parliament the Medium-Term Expenditure Framework statement in pursuance of the Fiscal Responsibility and Budget Management Act, 2003.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The framework assumes that nominal GDP growth for the current (2017-18) and subsequent two years would be 11.75%, 12.3% respectively<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Inflation rate is expected to be about 4%.<\/span><\/li>\n<\/ul>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Savings and investment ratio has declined in the recent period.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Solutions:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The savings-investment ratio would need to be increased.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Reducing public dissavings through privatisations such as Air India and other measures to boost savings <\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The demand boost \u00a0inevitable comes from domestic consumption which accounted for about 90% of GDP growth in FY 2017.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The survey projections accept the fiscal deficit of 3.2% in the current year and 3% for the subsequent two years.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Rekindling inflation :<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Faster resolution of the twin balance sheets is critical to rekindling private investment<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Accelerating the pace of agricultural reform<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Targeted capital expenditure<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Improving ease of doing business<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Multiple infrastructure initiatives like roads, and power<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Stressed sectors like telecom and power need speedier resolution<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Inflation rate:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The Economic Survey argues that India had moved to a low inflation trajectory, due to \u00a0supply-side elasticity in agriculture and long-term softening of global oil prices.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The Economic Survey seeks to highlight that for sustained 14 quarters the actual inflation (WPI-CPI) has undershot the projections made by the Reserve Bank (RBI).<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">In the Indian context ral neutral interest rates hover around 1.2-1.75% and that the present rate is about 25-75 basis points above the neutral rate.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Monetary policy:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">On monetary policy, the central bankers have all over made calculations and undershot inflation targets.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The inflation target is 4%.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Multiplier benefits from low interest rate regimes are contingent on deeper structural reforms<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Regarding the exchange rate, real effective interest rates have appreciated significantly.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The RBI has \u00a0the unenviable challenges \u00a0of managing significant inward capital flows with exchange rates which do not penalise domestic industry through a premium on cheaper imports.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Reasons:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Fiscal tightening by states due to Ujwal DISCOM Assurance Yojana (UDAY),<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\"> farm loan waiver, <\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">declining profitability of some key sectors like power and telecom, <\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The shadow of unresolved twin balance sheet problems and transitional issues of the GST are contributory to deflationary pressures.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">UDAY:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The scheme UDAY is designed to clean up the \u00a0balance sheets of electricity boards in the short run and is expected to improve management of electricity boards.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Appropriate action on tariff fixation, regular \u00a0billing cycles, monitoring timely collection by distributing companies is an integral part of the UDAY package.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">This would benefit state&#8217;s finances.<\/span><\/li>\n<\/ul>\n<p><strong>Conclusion:<\/strong><\/p>\n<ul>\n<li><span style=\"font-weight: 400;\">For addressing the above mentioned issues, short term state specific measures would need to be innovatively conceived.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">The recent initiatives to improve the fertilizer mix through extensive soil-testing along with the Pradhan Mantri Fasal Bima Yojana will prove beneficial to stabilise farm incomes.<\/span><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Cause for caution, not gloom\u00a0 Context: The Economic Survey volume II cautions policymakers of \u00a0a possible deflationary cycle. Growth rate: On the growth rate, while adhering to the forecast in Volume 1 for real GDP growth rate of 6.75%-7.5% this year, it suggests that the balance of risk has shifted to the downward side of&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/cause-for-caution-not-gloom\/\">Continue reading <span class=\"screen-reader-text\">Cause for caution, not gloom\u00a0<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[555],"tags":[],"class_list":["post-35535","post","type-post","status-publish","format-standard","hentry","category-test-1","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1704780455},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/35535","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=35535"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/35535\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=35535"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=35535"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=35535"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}