ECONOMIC SURVEY
NOTES:
Economic Outlook, Prospects and Policy
Challenges:
Inflation has declined by over 6 percentage points since late 2013
Current account deficit has declined from a
peak of 6.7 percent
of GDP (2012-13) to an estimated 1.0 percent in the coming fiscal year.
EFFECTS OF FOREIGN PORTFOLIO FLOWS:
stabilized the rupee
exerting downward pressure on long-term interest rates
reflected in yields on 10-year government securities
and
contributed to the surge
in equity prices.
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After a nearly 12-quarter phase of
deceleration, real GDP has been growing at 7.2 percent on average
since 2013-14, based
on the new growth estimates of the Central Statistics Office. Notwithstanding
the new estimates, the balance of evidence suggests that India is a recovering, but not yet a surging, economy.
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From a cross-country perspective, a Rational Investor Ratings Index (RIRI)which combines indicators of macro-stability with growth, illustrates that India ranks amongst the most attractive
investment destinations.
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The introduction of the GST and expanding
direct benefit transfers can be game-changers.
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In the short run, growth will receive a boost from the
cumulative impact of reforms,
lower oil prices,
likely monetary policy
easing facilitated by lower inflation and improved inflationary expectations, and forecasts of a normal monsoon in 2015-16.
Using the new estimate for 2014-15 as the base,
GDP growth at constant market prices is expected to accelerate to between 8.1 and 8.5 percent in 2015-16.
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Medium-term
prospects will be conditioned by the
“balance sheet syndrome with Indian
characteristics” (this phrase has been used
because Indian companies are suffering from a classic case of “debt overhang” after an investment bubble funded by borrowings
and the failure to commission such large investments) that has the potential to hold back rapid increases in private sector investment. Private investment must
be the engine of long-run growth. However, there is a case for reviving targeted public
investment as an engine of growth in the short run to complement and crowd-in private
investment.
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India can balance the short-term imperative of boosting public
investment to revitalize growth with the need to maintain fiscal discipline. Expenditure control,
and expenditure switching
from consumption to investment,will
be key.
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The outlook is favourable for the current
account deficit and it’s financing. A likely surfeit, rather than scarcity, of foreign capital will complicate exchange rate
management. Reconciling the benefits of these
flows with their impact on exports and the current account remains an important
challenge going forward.
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India faces an export challenge,
reflected in the fact that the share of manufacturing and services exports in GDP
has stagnated in
the last five years.
The external trading environment is less benign in two ways:
1.
Partner country growth and their absorption of Indian exports has slowed, and
2.
Mega-regional trade
agreements being negotiated by the major trading nations in Asia and Europe
threaten to exclude India
and place its exports at a competitive
disadvantage.
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India is increasingly young, middle-class, and
aspirational but remains stubbornly male. Several indicators suggest that gender inequality is persistent and
high. In the short run, the renewed emphasis on family planning targets,
backed by misaligned incentives, is undermining the health
and reproductive autonomy
of women.
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