economic survey-volume ii- chapter 1 - part 3 (1)procedural reforms introduced in union budget...
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Chapter1
VolumeII
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Chapter 1Introduction
SectionA.AnalyticalreviewofrecentdevelopmentTheGoods&ServicesTax
ParadigmShifttoLowInflationWedgebetweenassetprice&realeconomyFarmLoanWavers- MacroEconomicImpact
Demonetization:LongTermBenefits&ShortTermCostSectionB.Outlook&policiesfor2017-18
SectionC:ReviewofDevelopmentin2016-17
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Review of Developments in
2016-17
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1.GDP• AccordingtoCSOMay2017estimatesrealGDPgrewby7.1%in2016-17incomparisonto8%inpreviousyear.
• ThisperformancewashigherthantherangepredictedinVolumeI.
• Itsuggestedthateconomywasmoreresilienttothelargeliquidityshockofdemonetization.
• ThisresilienceismoreapparentinnominalGDPandGVAwhichacceleratedbyalmost1%morein2016-17thanto2015-16.
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GDP• DespiteofresiliencethelatestGDPfiguresraisedquestionsongrowth
trajectoryduringthecourseFY2017.• RealGDA&GVAgrowthdeclinedforfourconsecutivequarters.• ThegrowthinCoreGVA(TotalGVAexcludingagriculture,defenceandother
services)deceleratedby3.6%fromFY2016toFY2017.• ManufacturingGVAgrowthstarteddecliningfromQ4FY2016.• ThegrowthinrealfixedinvestmentwaslowsincethesecondhalfofFY2013
anddeclinedsteeplyafteratemporaryspurtinthesecondhalfofFY2016• AsperSurveycalculationsprivateinvestmentgrowthisestimatedtobe
negativein2016-17.• Theonlydemandboostcamefromconsumption,whichaccountedforabout
96percentofGDPgrowthinFY2017.
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2.Inflation• TheIndianeconomyhasgonethroughadramatictransitionfromhightolowinflation.
• AnnualInflationaveragedfrom5.9%in201-15andhasdeclinedto4.5%inFY2017.
• Inflationdeclinesharplyfrom6.1%inJuly2016to1.5%inJune2017pertainingtogrowthdeceleration.
• FoodinflationhadhardenedduringthefirstfewmonthsofFY2017duetoupwardpressureonprices,mainlyofpulsesandvegetables,butsoftenedsubsequentlywithimprovementinseasonalavailabilityandparticularlyafterdemonetization.
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2.Inflation
• HeadlineCPIinflationhasnowbeenbelowtheRBI’s2017targetfortenconsecutivemonthsbyabout1.7percentagepointsonaverage.
• Notonlyheadlinebutrefinedcoreinflation—whichstripsoutagricultureandoilaswellastheoil-componentintransportationservices— declinedsteadilyfromover5percentinJune2016to3.9percentinJune2017.
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2.Inflation
• AsharpdeclineinWPIinlateFY2015andthroughoutFY2016owedtothedecelerationinglobalcommodityprices,especiallycrudeoilprices.
• Withglobalcommoditypricesrecoveringandthe‘baseeffect’(lowinflationinthepreviousyear)givinganupwardpush,wholesaleinflationperkedupduringFY2017.
• Thevastdivergencebetweentheretailandwholesaleinflationhasnowbeeneliminated.
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3.ExternalSector
• Withthegreenshoots slowlybecomingvisibleinmerchandisetrade,androbustcapitalflows,theexternalpositionappearsrobust,reflectedinteraliainrisingreserves andastrengthening
exchangerate.
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3.ExternalSector
• Thecurrentaccountdeficitnarrowedin2016-17to0.7percentofGDP,downfrom1.1percentofGDPthepreviousyear.
• Exportgrowthturnedpositiveafteragapoftwoyearsandimportscontractedmarginally,sothatIndia’stradedeficitnarrowedto5.0percentofGDPinFY2017ascomparedto6.2percentinthepreviousyear.
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3.ExternalSector
• TheCapitalAccountsurplusexceedingthecapitalaccountdeficitresultedinincreaseinaccumulationofforeignreserves.
• Asaresultofabovereservebasedexternalsectorvulnerabilityindicatorshasimproved.
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4.FiscalDevelopment
• ThegovernmentadheredtoFiscalDeficittargeteventhough:• TherewasexpenditurecompulsionofSeventhPayCommissionandOROPimplementation.
• Spectrumauctionanddisinvestmentreceiptfallshortofthetargets.
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CPSE – CentralPublicSectorEnterprise(CIL,SAIL,BHEL,GAILetc)RE – RevisedEstimateBE- BudgetedEstimate
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4.FiscalDevelopment
• Overall,thefiscaloutcomeoftheCentralGovernmentinFY2017wasmarkedbyrobustgrowthintaxrevenue andthemajorsourcesare:• ExciseDutyonpetroleumproducts(2/3ofgrowthofexcise
collection)• Buoyantcollectionofexcisedutyandservicetaxisobservedbymobilizingadditionaltaxresources.
• Swach BharatCess &Krishi Kalyan Cess (1/3ofgrowthinservicetaxcollection)
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4.FiscalDevelopment
• FiscalDeficitsofStatesdetrioted duetoincreasedDISCOMliabilityundertheUDAYprogramme.
• DuringFY2016fiscaldeficitofstatesincreasedby1%.
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4.FiscalDevelopment
ProceduralReformsintroducedinUnionBudget2017-18:1. RailwayBudgetwasintegratedwithUnionBudgetbringingrailwayfinancein
mainstream.2. ThedateoftheUnionBudgetwasadvancedtoFebruary1,almostbyamonth,
tohelpCentralministriesandStategovernmentsplanandspendtheirfullbudgetfromthebeginningofthefinancialyear.
3. theclassificationofexpenditureinto‘plan’and‘non-plan’waseliminatedtoallowfocusonthemoreeconomicallymeaningfulcapital-revenuedistinction.
4. TheMediumTermExpenditureFrameworkStatementwasrestructuredtogiveprojectedexpenditures(revenueandcapital)foreachdemandforthenexttwofinancialyears.
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