GDP 7-7.75 per cent Bid to lower expectations

The Economic Survey 2015-16 said Friday India stands out as a “haven of stability” and an “outpost of opportunity” amid the global turmoil and projected growth at between seven to 7.75 per cent in 2016-17. It put 2015-16 GDP growth at 7.6 per cent, so the Economic Survey projection for 2016-17 means either GDP will grow marginally higher than the current fiscal or even lower if the external situation worsens.

However, it also warned of the need for a “recalibration of expectations” due to the tough external situation and said it may take India a few years longer to reach its full potential of 8-10 per cent amid slow global growth.

Tabled in Parliament on Friday, three days before finance minister Arun Jaitley presents his third Budget Monday, the Survey urged the government to press ahead with reforms, cut subsidies and introduce GST, while pushing for a review of mid-term fiscal targets to create space for additional expenditure.

The Economic Survey said India’s macro-economy was stable, founded on the government’s commitment to fiscal consolidation and low inflation. “Its economic growth is among the highest in the world, helped by a reorientation of government spending toward needed public infrastructure. It is likely to be the fastest growing major economy in the world in 2016.,” the Survey noted.

It said these achievements are “remarkable ... not least because they have been accomplished in the face of global headwinds and a second successive season of poor rainfall.” The Survey added: “The task now is to sustain them in an even more difficult global environment. This will require careful economic management.”

The Survey signalled that the government may review its fiscal deficit target for the next fiscal year due to the recommendations in the 7th Pay Commission report. It called for more easing of interest rates in view of current low inflation to help industry, implementation of the Goods and Services Tax and bringing down subsidies.

It warned that India will needs to prepare itself for the possibility of turmoil on international currency markets amid an “unusually weak external environment”. It said: “India must plan for a major currency readjustment in Asia in the wake of a similar adjustment in China.”

“For now, but not indefinitely, the sweet spot created by a strong political mandate but recalibrated to take account of a weaker external environment, is still beckoningly there,” said the Survey. “In the current global environment, there needs to be a recalibration of growth expectations and consequently of the standards of assessment.” It warned if global growth remained weak, despite reforms, Indian will grow near 7-7.5 per cent rather than 8-10 per cent.

“If the world economy lurches into a crisis or slides into further weakness, India’s growth will be seriously affected, for the correlation between global and Indian growth has been growing dramatically,” the Survey said.

“India’s medium-term growth trajectory could well remain closer to 7-7.5 per cent per cent, notwithstanding the government’s reform initiatives, rather than rise to 8-10 per cent that its long-run potential suggests,” it added.

The Survey said there were also some disappointments — especially the Goods and Services Tax — which need to be retrieved going forward. “Accelerated structural reforms at the Centre, the dynamism of competitive federalism and good economics being good politics could all combine to maintain the fundamental promise that is India,” it said.

It also put the total cost of recapitalising banks at $26 billion in the coming years. It said the government will stick to its Budget deficit target of 3.9 per cent of GDP for the current fiscal, but next year will be “challenging” from a fiscal point of view.