Indian Economy Back on Track: Economic Survey 2018

Good news is underway for India as its economy is poised to win back its tag of the fastest growing economy in the world. As the disruptions caused by the Goods and Services Tax (GST) and demonetization recede, the economy is on the rebound and is likely to achieve higher growth.

The Economic Survey 2018, an annual report on the health of the economy, tabled by Finance Minister Arun Jaitley in Parliament on Monday pegged India’s GDP growth in 2019 to be between 7 and 7.5 per cent, against 6.5 per cent in the current fiscal to once again become the world’s fastest-growing major economy.

Fuelled by stronger private investment and exports, the recovery forecast for India’s growth rate comes after the country posted its slowest growth in three years in 2017/18.

The slowdown was partly a consequence of the chaotic rollout of nationwide goods and service tax last year and a shock move to take high value currency notes out of circulation in late 2016.

However, the survey cautioned that persistently high oil prices remained a key risk for a country that relies on imports for close to 80 per cent of its fuel needs. There are aspects to the analysis of the ongoing financial year that suggest the Survey has taken an optimistic view of growth. It admitted that in 2017-18, “fiscal deficits, the current account, and inflation were all higher than expected”. Manufacturing was still struggling, with the ratio of factory exports to GDP declining, along with the manufacturing trade balance. And agriculture has not seen an increase in real value added for four years. 

The Survey argued that the government had taken major steps towards resolving the “twin balance sheet” problem, in which indebted companies combined with banks that had a large proportion of stressed assets to reduce the rate of investment. This problem, which the Survey described as the “festering, binding constraint” on growth, had been addressed in the past year by the movement on recognition of stressed assets, a recapitalisation package that amounted to 1.2 per cent of GDP, as well as the implementation of the asset resolution process mandated by the Insolvency and Bankruptcy Code (IBC). 

The Survey indicated that movement on bank reform would aid in the recovery of the investment mechanism, a prerequisite for growth. 

All eyes are now set on Finance Minister Arun Jaitley's speech in Lok Sabha on February 1 when he will present the Union Budget.

Latin Manharlal Group