FICCI's Eco­nomic Out­look Sur­vey projects GDP growth of 6.8% for 2016-17

FICCI Business Digest - - Special Feature -

The lat­est round of FICCI's Eco­nomic

Out­look Sur­vey puts forth an an­nual median GDP growth fore­cast of 6.8% for 2016-17. This is 0.5 per­cent­age points lower than the es­ti­mate of 7.3% across in the last round. The Cen­tral Sta­tis­ti­cal Or­ga­ni­za­tion had pro­jected a GDP growth of 7.1% for 2016-17 ear­lier this year.

The sur­vey was con­ducted in the months of De­cem­ber 2016 and Jan­uary 2017 and drew re­sponses from lead­ing econ­o­mists rep­re­sent­ing in­dus­try, banking and fi­nan­cial ser­vices sec­tor.

Ac­cord­ing to the sur­vey re­sults, agri­cul­ture sec­tor is ex­pected to

wit­ness an uptick in the fis­cal year 2016-17. The monsoon has been good which is ex­pected to sup­port agri­cul­tural pro­duc­tion. How­ever, growth in both in­dus­try and ser­vices sec­tor is an­tic­i­pated to mod­er­ate. In­dus­try and ser­vices sec­tor are ex­pected to grow by 5.7% and 8.5% re­spec­tively in 2016-17.

The de­ci­sion of the Govern­ment to de­mon­e­tize high value cur­rency notes has had an im­pact on the cash de­pen­dent sec­tors and is ex­pected to cause a slow­down in in­dus­trial and ser­vices sec­tor growth, ac­cord­ing to the par­tic­i­pat­ing econ­o­mists.

The sur­vey re­sults also brought to fore the di­vided view amongst econ­o­mists on the time frame for nor­malcy to re­turn in the econ­omy fol­low­ing the de­mon­eti­sa­tion move. Although some be­lieved that things will start rolling back to the way they were in the pre­de­mon­e­ti­za­tion days by the end of the cur­rent quar­ter (March 2017), oth­ers felt that it could take at least two more quar­ters for things to fully set­tle (June 2017). Once the re-mon­e­ti­za­tion phase is com­plete and cur­rency is back in cir­cu­la­tion, GDP growth would see a re­cov­ery.

Econ­o­mists pointed out that In­dia's eco­nomic growth was be­ing pro­pelled by govern­ment spend­ing and pri­vate con­sump­tion and the lat­ter has been hit due to the de­mon­e­ti­za­tion move. This will af­fect re­cov­ery in investments and over­all growth. Econ­o­mists felt that the govern­ment will con­tinue the fo­cus on ad­di­tional spend­ing es­pe­cially in in­fra­struc­ture projects to give a push to the econ­omy.

With re­gard to dig­i­ti­za­tion, econ­o­mists felt that the tran­si­tion from cash to dig­i­tal pay­ments will be harder in the ru­ral ar­eas. It was sug­gested that in­stead of pro­mot­ing plas­tic cur­rency, the Aad­har en­abled pay­ment sys­tem would fa­cil­i­tate a smooth

In­stead of pro­mot­ing plas­tic cur­rency, the Aad­har en­abled pay­ment sys­tem would fa­cil­i­tate a smooth tran­si­tion in the ru­ral ar­eas and should be the fo­cus of govern­ment ef­forts.

tran­si­tion in the ru­ral ar­eas and should be the fo­cus of govern­ment ef­forts.

Fur­ther, on the price front, in­fla­tion is ex­pected to re­main be­nign. Con­sumer Price In­dex based in­fla­tion has a median fore­cast of 4.7% for 2016-17, with a min­i­mum and max­i­mum range of 3.8% and 5.1% re­spec­tively.

Econ­o­mists were also asked to share their as­sess­ment about the bi-monthly mon­e­tary pol­icy to be an­nounced in the first week of Fe­bru­ary 2017. A ma­jor­ity of the re­spon­dents ex­pected the Re­serve Bank of In­dia to main­tain sta­tus quo with re­gard to repo rate on ac­count of do­mes­tic and global fac­tors. It was felt that up­side risks to in­fla­tion re­main as the global com­mod­ity prices are firm­ing up and the cen­tral bank would con­tinue to closely watch the in­fla­tion level.

Fur­ther, some ma­jor banks have re­cently re­vised down their lend­ing rate which has given room to the Re­serve Bank to un­der­take a halt. On the global front, pol­icy stance of de­vel­oped na­tions such as the United States will be crit­i­cal.

How­ever, econ­o­mists an­tic­i­pate the ac­com­moda­tive stance of the RBI to con­tinue with a prob­a­ble rate cut of 25 bps in first half of the fi­nan­cial year 2017-18.

The par­tic­i­pat­ing econ­o­mists were asked to share their top ex­pec­ta­tions from the Union Bud­get 2017-18. The re­spon­dents unan­i­mously felt that the bud­get should re­vamp the in­come tax frame­work for both in­di­vid­u­als and cor­po­rates. This will help lend some sup­port to con­sumer spend­ing which has been hit post de­mon­eti­sa­tion.

Also, al­lo­ca­tions to­wards agri­cul­ture in form of in­creased ex­pen­di­ture on ir­ri­ga­tion and higher spend on MNREGA are seen, which will give a thrust to ru­ral de­mand.

The Govern­ment is also ex­pected to con­tinue the fo­cus on in­fra­struc­ture, MSME, real es­tate and hous­ing sec­tor. The real es­tate sec­tor has been dis­play­ing a muted per­for­mance and has been fur­ther af­fected by de­mon­eti­sa­tion. The sec­tor is likely to get spe­cial fo­cus in the bud­get and new schemes and poli­cies to re­vive the real es­tate sec­tor and the hous­ing seg­ment - es­pe­cially af­ford­able hous­ing may be on the anvil.

Some of the other ex­pec­ta­tions in­di­cated by the par­tic­i­pat­ing econ­o­mists were - greater infusion of cap­i­tal in public sec­tor banks and an­nounce­ment of fur­ther mea­sures to strengthen as­set qual­ity of the public sec­tor banks.

Also, econ­o­mists ex­pect the govern­ment to fur­ther boost its ef­forts to in­crease em­ploy­ment through its flag­ship pro­grammes such as 'Make in In­dia' and 'Skill In­dia'. Econ­o­mists also ex­pect the govern­ment to un­veil in­cen­tives to pro­mote ex­ports.

Ma­jor­ity of the econ­o­mists also be­lieved that guide­lines will be laid for the roll out of the Goods and Ser­vices Tax.

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