Economic growth likely to be consumption-led
Strengthening of global demand will support domestic economy: RBI
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.
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