Key takeaways from the Economic Survey 2017-18

1. ECONOMIC SURVEY
2017-18
Government of India
Ministry of Finance
Presentation by:
PRANJAL MEHTA
Birla Institute of Management Technology,
Greater Noida

2. BACKGROUND
 Economic survey is the annual publication of the
Department of Economic Affairs, Ministry of Finance
 It puts forth the ministry’s view on recent
developments in the Indian economy and the future
outlook in short to medium term
 It is normally presented a day before the presentation of the Union budget and acts as a
precursor to the budget
 Prepared under the guidance of Chief Economic Advisor, Arvind Subramanian, the
Economic Survey 2017-18 was presented in the parliament by Union Minister for
Finance, Arun Jaitley on 29th January 2018

3. PREVIOUS YEAR MACROECONOMIC TRENDS
First half of the year:
Slow growth in Indian economy as Rest
of the World showed positive growth.
Major reasons:
 Demonetization impact
 Teething difficulties in GST
 Rising real interest rates
 Twin Balance Sheet problem
 Sharp fall in food prices affecting
agriculture sector
Second half of the year:
Signs of revival in the Indian economy as
shocks began to fade and GDP growth
accelerated.
Major reasons:
 Corrective actions taken by
government through policies, reforms
etc.
 Exports boosted due to global
economic recovery
 More people in tax net after GST and
demonetization

4. UNDERLYING MACRO VULNERABILITIES
The fiscal & current account of India tends to deteriorate especially when oil prices rise.
Overcoming Fiscal vulnerability:
 There is a need to increase in tax-GDP ratio through formalization of the economy and
bringing more people in the tax net.
 1.8 million additional tax payers (3% of existing) due to demonetization-cum-GST
effect.
 Limited revenue impact as majority of new taxpayers were close to the threshold of Rs.
2.5 lakhs. Hence, not much improvement observed in tax-GDP ratio.
 Halting of steady conversion of contingent liabilities into actual ones required (mainly
through DISCOM debts and recapitalization od PSBs)
Overcoming Current account vulnerability:
 Raising the trajectory of export growth is required through macroeconomic policies
 Need to revive manufacturing sector to make it internationally more competitive.

5. POLICIES, REFORMS & INITIATIVES
Goods & Services Tax:
 50 percent increase in unique indirect taxpayers after GST launch
 1.8 million additional individual income tax filers since November 2016
 GST Council shows that “cooperative federalism” is a technology for reforms in several
other areas
Indian Bankruptcy Code
 The new Indian Bankruptcy Code will help corporates in cleaning up their balance sheets
and reducing debt.
 Aim is to resolve one side of the Twin Balance Sheet problem
Recapitalization of Public sector banks
 A large recapitalization package (~1.2% of GDP) announced by government to strengthen
the balance sheet of public sector banks and help them fight the Twin Balance Sheet
problem

6. Demonetization
 Demonetization temporarily reduced demand and hampered production, especially
especially in the informal sector
 Personal income tax collections increased substantially
 During 2016-17, saving in the form of currency notes has declined due to
demonetization while it has increased in the form of shares, mutual funds etc.
Direct Benefit transfer
 DBT is an attempt to change the mechanism of transferring subsidies to make the
the system more transparent and simpler
 The aim is to transfer subsidies directly through bank accounts
Other major government projects:
 PMAY (Housing), village electrification, Swachh Bharat Abhiyan etc.

7. GDP TRENDS
 With a GDP growth of 6.75% in 2017-
18, India regained its status of fastest
growing major economy in December
2017 after lagging behind China for a
year.
 GDP expected to grow at the rate of 7-
7.5% in the year 2018-19
 If macro-economic stability is kept
under control, the ongoing reforms are
stabilized, and the world economy
remains buoyant, growth could start
recovering towards its medium term
economic potential of at least 8%
7.00
6.75
7.50
5.0
5.2
5.4
5.6
5.8
6.0
6.2
6.4
6.6
6.8
7.0
7.2
7.4
7.6
7.8
8.0
8.2
2012-13 2014-15 2015-16 2016-17 2017-18 2018-19
GDP growth

8. SECTORAL TRENDS
 Agriculture: The Gross Value Added (GVA) by agriculture and allied sectors grew at
an estimated rate of 4.9% for 2016-17
 Industries: Growth rate in the Gross Value Added (GVA) by the industrial sector was
5.6% in 2016-17 and 5.8% in the Q2 2017-18
 Infrastructure: India had 115,530 km of national highways, 176,166 km of state
highways and 53,26,166 km of other roads as of September 2017
 Services: As per WTO data, India’s share in the exports of commercial services in the
world increased to 3.4% in 2016 from 3.3% in 2015
 Corporates: The performance of corporate sector highlighted that the growth in
sales of more than 1700 non-government non-financial (NGNF) listed
manufacturing companies was 9.5% in Q2 2017-18 compared to 3.7% in Q2
2016-17

9. FISCAL DEFICIT
 The fiscal deficit, which was 85.8% of the budgeted
expenditure during April-November 2016 reached
112% during the corresponding period in 2017
Major factors that affected fiscal deficit were:
1. Rise in oil prices
2. Shortfall in non-tax revenue
3. Inertia of the tax-GDP ratio
4. Early progression of expenditure and front-
loading of some expenditure
 Fiscal deficit expected to be 3.2% of GDP for 2017-
18

10. INFLATION & MONETARY POLICY
 Average CPI inflation for the first 9 months averaged 3.2% and is projected to reach
3.7% for the year as a whole
 Average CPI inflation in the last quarter of 5%, in line with the RBI’s forecast
 The Reserve Bank of India (RBI) cut the repo rate by 25 basis points to 6% in August
2017.
 The recent upswing in inflation stems from:
1. Rising global oil prices (not all of which has been passed on to consumers)
2. Unseasonal increases in the prices of fruits and vegetables
3. The 7th Pay Commission housing rent allowances, which mechanically increase
inflation

11. FOREIGN TRADE
 During April-December 2017, exports grew 12.1 per cent to US$ 223.5 billion,
while imports increased by 21.8 per cent to US$ 338.4 billion
 The above changes in exports and imports caused an increase in trade deficit by
46.4% over corresponding period of previous year
 Private transfer receipts increased by 10 per cent to US$ 33.5 billion in first half
of 2017-18
 The current account deficit declined to about 1.8% of GDP in the first half of the
year 2017-18

12. POLICY AGENDA FOR FUTURE
SHORT TERM
 Resolving twin balance sheet problem: effectively implementing the 4 R’s (Recognition,
Resolution, Recapitalization, Reforms)
 Stabilization of GST implementation to remove uncertainty for exporters & expand tax
base
 Addressing other threats to macroeconomic stability like rising oil prices & elevated asset
prices
 Privatization of Air India
MEDIUM TERM
 Employment: finding good jobs for young & burgeoning workforce, especially women
 Education: creating an educated & healthy labor force
 Agriculture: Raising farm productivity while strengthening agricultural resilience
 Business: Strengthening private investments & exports

13. OTHER HIGHLIGHTS
 Jan Dhan accounts increased from ~10 crore
in December 2014 to ~30 crore in December
2017
 Zero balance accounts reduced from 70% of
total accounts in December 2014 to 20% in
December 2017
 India climbed up 30 spots in World bank’s ease
of doing business rankings
 Foreign Direct Investment increased by 20% in the previous year
 India’s sovereign rating upgraded after 14 years
 Dualities of revival & risk were reflected in the second half of the year when there was
sharp rise in bond yields even when stock prices continued upward
 India regained its status of fastest growing major economy in December 2017 with a GDP
growth of 6.75%

14. THANK YOU!