New Delhi: A day before the presentation of Union Budget 2017, the Economic Survey on Tuesday pegged the country's economic growth at a conservative level of  6.75-7.5 percent for the next fiscal.


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The Economic Survey 2017 was presented in the Parliament today by the Finance Minister Arun Jaitley.


The Economic Survey pointed out that demonetisation will have both short-term costs and long-term benefits.


"Briefly, the costs include a contraction in cash money supply and subsequent, albeit temporary, slowdown in GDP growth; and benefits include increased digitalization, greater tax compliance and a reduction in real estate prices, which could increase long-run tax revenue collections and GDP growth." it said.


The Economic Survey further stated that while economic performance has been remarkable in the aggregate, India’s success as a federation depends on the progress of each of its individual states.


 


Key Highlights of Economic Survey


 


ECONOMY



* See FY18 GDP growth in the range of 6.75-7.50%
* FY17 industrial growth seen 5.2% vs 7.4% FY16
* FY17 farm growth seen 4.1% vs 1.2% FY16
* Services sector seen growing 8.9% FY17, almost same as FY16
* India macroeconomic indicators remain robust
* India to remain fastest growing major economy in FY18
* Three main downside risks to FY18 GDP growth forecast
* Demonetisation a risk to FY18 GDP growth forecast
* Rise in oil prices a risk to FY18 GDP growth forecast
* Rise in global trade tensions risk to FY18 growth
* Rebound in global demand an upside risk to FY18 growth
* Private invest unlikely to recover significantly FY18
* Outlook for FY18 GST collections must be cautious
* States' average fiscal deficit curbed to 3% of GSDP
* States' average debt-GSDP ratio seen a decline
*CPI-based core inflation stable, average about 5% FY17
* States' average revenue deficit has been eliminated
* Methodology of rating cos not reasonable or consistent
* To release a review on economy later in summer
* India survived major shocks from US polls, cash curbs
* Easy to become complacent about macro economic stability


 


UNIVERSAL INCOME



* Need to seriously consider universal basic income idea
* Universal basic income an idea ripe for discussion
* Universal basic income idea not ripe for implementation
* Universal basic income plan may lessen exclusion error
* Universal basic income rollout to see many challenges
* Universal basic income cost seen at 4-5% of GDP
 


DEMONETISATION, DIGITISATION



* Currency shortage to affect supply of some farm products
* FY17 GDP to understate note ban hit on informal sector
* Remonetisation to eliminate cash squeeze by April
* Demonetisation to have short-term costs, long-term gain
* Contractionary effect of note ban to subside by year-end
* Note ban to shave off 25-50 bps from FY17 GDP growth
* Demonetisation led to job losses, fall in farm income
* Remonetisation to see GDP converge to trend path FY18
* Social disruption in cash-intensive areas on note ban
* RBI balance sheet to shrink post note exchange deadline
* RBI wealth to rise when unreturned cash is extinguished
* Anecdotal evidence shows active laundering
* Govt wealth to rise when unreturned cash extinguished
* Govt windfall post note ban must be spent on capex
* Remonetisation should depend on actual demand for cash
* Penalty on cash withdrawals would encourage hoarding
* Must end cash withdrawal caps soon to curb note ban hit
* There should be no penalties on cash withdrawals
* Penalty on cash withdrawal will encourage cash hoarding
* Govt, RBI must bear cost of digitalisation incentives
* This isn't the forum to discuss management of note ban
* Size of short-term costs of note ban remains uncertain
* Size of long-term gains of note ban remains uncertain
* "Digitalisation not a panacea, nor is all cash bad"
* Must balance cost, benefits of cash, digital payments
* Transition to digitalisation must be gradual
* Move to digitalisation must consider digitally-deprived
* Incentive to boost digital payment should be time-bound
* Must ensure interoperability of digital payment systems
* Fall in real estate prices post note ban is desirable


FISCAL HEALTH




* Need to modify operational framework of FRBM Act
* Basic tenets of FRBM remain valid
* Govt more credible now due to steady fall in fiscal gap
* See fiscal windfall from invalid notes not returned
* See fiscal windfall from PM Garib Kalyan Yojana
* Fiscal windfall from low oil prices to disappear FY18
* Fiscal gains from demonetisation to take time to realise
* Fiscal gains from GST to take time to be realised
* Muted non-tax revenues to weigh on fiscal math FY18
* Govt staff allowances to weigh on fiscal math in FY18
* Economic recovery from demonetisation needs policy support
* Excise related taxes to fall around 0.1% of GDP FY18
* Pay panel award, UDAY bonds a challenge to state fisc
* Fiscal activism of advanced economies not relevant for India
* Income tax rates could be cut to complement note ban
* Can accelerate timetable for cutting corporate tax rate
* Suggest bringing land, real estate under GST
* Property tax can be tapped for more city level revenue
* Fall in stamp duty, tax must to boost affordable homes
* Can cut real estate stamp duties to complement note ban
* Property tax can be tapped for more city level revenue
* Can use satellite technology to up property tax compliance


MONETARY POLICY




* Lower interest rates in FY18 to boost economy
* Rise in oil prices may reduce scope for monetary easing
* Market interest rates seen lower in FY18 due to note ban
* Sharp rise in prices FY18 may cap monetary easing room
* Constructs new measure of real effective exchange rate


RBI, BANKING




* Moots asset rehabilitation agency for PSU banks
* Govt-backed bad bank to hasten NPA resolution
* 13 banks with 40% of India loans "severely stressed"
* PSU banks' return on assets way below global norm
* Investors not keen to pay "full price" for PSU bank shares
* Can use RBI's excess capital to recapitalise PSU bad bank
* PSU asset recast co best use of note ban windfall gain
* Must solve twin woes of debt-laden cos, NPA-heavy banks
* Need decisive NPA resolution to avoid drag on growth
* No reason why extra capital should be kept with RBI
* RBI currently "exceptionally highly capitalised"
* Case for redeploying RBI capital more productively
* FCNR redemptions went off smoothly
* Can use RBI excess capital for recapitalising PSU banks
* Can use RBI excess capital to extinguish govt debt
* RBI excess capital use shouldn't hurt its credibility


INDUSTRY



* Recommend labour, tax reforms for leather sector
* Recommend labour, tax reforms for apparel sector
* China's fall in competitiveness good for leather export
* Spot tariff for electricity below breakeven rate
* Most private power generation cos short on cash
* Balanced fall in realty price must for affordable homes