A government survey prior to the annual budget has signalled that the Indian economy could expand by between 6.75 per cent and 7.5 per cent in 2017-18. It said the growth could recover sooner than expected after a shock-scrapping of high-value banknotes to fight "black money". The Economic Survey said the cash ban will, however, slow down growth for 2016-17 to below 7 per cent.
"The cash squeeze... will have significant implications for GDP, reducing 2016-17 growth by ¼ to ½ percentage points compared to the baseline of 7 per cent," the survey said. It put the growth rate in the first eight months of the current financial year at 7.1 per cent. The Economic Survey is an annual government report on the economy that also sets the tone for the general budget, and floats new policy ideas. Finance Minister Arun Jaitley is all set to present his fourth annual budget on Wednesday (Feb 1). The session comes three months after Prime Minister Narendra Modi pulled out 86 per cent of all cash from the economy. The move significantly disrupted economic activity in Asia's third-largest economy, particularly affecting the poor.
The Survey said "demonetisation" would bring long-term benefits to the economy, adding that the structural reforms and a proposed Goods and Services Tax could boost growth rate to 8 to 10 per cent. Authored by the government's chief economic advisor, the survey suggested quick replenishment of cash in the economy and free convertibility of cash to deposits to stem any GDP growth deceleration. "The Indian economy has sustained a macro-economic environment of relatively lower inflation, fiscal discipline, and moderate current account deficit coupled with broadly stable rupee-dollar exchange rate," it said.
The survey has pegged growth in the agriculture sector at 4.15 per cent in 2017-18, significantly higher than the 1.2 per cent last year. It also backed a universal basic income for the poor, replacing existing welfare schemes, however adding the time probably wasn't right for its introduction. "The UBI is a powerful idea whose time even if not ripe for implementation, is ripe for serious discussion. Based on the principles of universality, unconditionality, and agency, is a conceptually appealing idea but with a number of implementation challenges lying ahead, especially the risk that it would become an add-on to, rather than a replacement of, current anti-poverty and social programmes, which would make it fiscally unaffordable."
