Eco­nomic growth likely to be con­sump­tion-led

Strength­en­ing of global de­mand will sup­port do­mes­tic econ­omy: RBI

The Hindu Business Line - - FRONT PAGE -

The Re­serve Bank of In­dia, in its An­nual Re­port 2016-17, has said strength­en­ing ex­ter­nal de­mand will help sup­port the econ­omy, even while favourable do­mes­tic con­di­tions are ex­pected to quicken the pace of over­all eco­nomic ac­tiv­ity dur­ing the year.

Global growth is gain­ing trac­tion in 2017-18, with the re­cov­ery driven pri­mar­ily by a cycli­cal up­turn in in­vest­ment, man­u­fac­tur­ing and trade, the re­port said.

While growth in the do­mes­tic econ­omy is ex­pected to be con­sump­tion-led, re­mon­eti­sa­tion is ex­pected to en­able a pick-up in dis­cre­tionary con­sumer spend­ing.

On the whole, real gross value added (GVA) growth is ex­pected to rise to 7.3 per cent in 2017-18, from 6.6 per cent in 2016-17, the re­port said.

“Gov­ern­ment spend­ing con­tin­ues to be ro­bust, cush­ion­ing the im­pact of a slow­down in other con­stituents. Fur­ther­more, re­duc­tions in bank lend­ing rates post de­mon­eti­sa­tion should sup­port in­vest­ment de­mand,” the RBI said.

How­ever, global po­lit­i­cal risks and ris­ing in­put costs may have an im­pact on prof­itabil­ity of firms, pulling down the over­all GVA growth. The twin bal­ance sheet prob­lem — over-lever­aged cor­po­rate sec­tor and stressed bank­ing sec­tor — could de­lay the re­vival in pri­vate in­vest­ment de­mand, the re­port added.

In­fla­tion

The head­line in­fla­tion is fore­cast to be in the range of 2-3.5 per cent in the first half of

Gov­ern­ment spend­ing con­tin­ues to be ro­bust cush­ion­ing the im­pact of a slow­down in other con­stituents. Fur­ther­more, re­duc­tions in bank lend­ing rates post de­mon­eti­sa­tion should sup­port in­vest­ment de­mand

2017-18 and 3.5-4.5 per cent in the sec­ond half.

The im­ple­men­ta­tion of GST is not likely to have a ma­te­rial im­pact on head­line in­fla­tion in the near term, the re­port ob­served. Head­line in­fla­tion re­mained around 2.2 per cent in the first quar­ter of 2017-18 and de­clined to a his­toric low of 1.5 per cent in June 2017, pri­mar­ily on the back of dis­in­fla­tion in food.

How­ever, mov­ing for­ward, some uptick in over­all food in­fla­tion could be ex­pected as “un­favourable base ef­fects set in from Au­gust 2017”, the re­port pointed out.

While in the medium term, GST im­ple­men­ta­tion is ex­pected to bring about tax buoy­ancy and growth, near-term un­cer­tain­ties with re­gard to rev­enue mo­bil­i­sa­tion im­pact­ing fis­cal con­sol­i­da­tion at both the Cen­tral and State lev­els could not be ruled out.

Public credit reg­is­ter

The RBI is look­ing to con­sti­tute a high-level task force to sug­gest a roadmap for de­vel­op­ing a trans­par­ent and com­pre­hen­sive public credit reg­is­ter (PCR).

The task force, com­pris­ing

The over-lever­aged cor­po­rate sec­tor and the stressed bank­ing sec­tor could de­lay the re­vival in pri­vate in­vest­ment de­mand

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