GST disruption, farm loan waivers to keep GDP from reaching 7.5, says CEA Arvind Subramanian

The Indian economy has seen an across-the-board deceleration in activity and requires policy makers to come up with all the possible tools to revive growth, Chief Economic Adviser Arvind Subramanian said on Friday.

The likely growth this fiscal will be towards the lower end of the 6.75-7.5 per cent band suggested in January-end, mainly because of downside effects of factors like the appreciation of the rupee, farm loan waivers and transitionary challenges from implementing GST, he said.

The only upside possibility is exports growth.

"Farm loan waiver will be deflationary exerting a drag on growth in short run... We are not changing the growth forecast, but we are saying that because of all these risks it is less likely that we will see outcomes towards the upper end of the forecast," said Subramanian.

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Addressing reporters after the Economic Survey-2 was tabled in Parliament, he said there was an "across-the-board deceleration" in real economic activity since the first and second quarters of last year.

"There are very favourable medium term developments. The real challenge now is short term growth and how we need to respond to that. We need to bring to bare all the policy tools we have to revive short term growth," said Subramanian, the author of the Survey.

For the last 10 months, he said, inflation figures have come out better by about 150 basis points than the target that was set.

"End March inflation is going to be well within target and average inflation for year as a whole is going to be well below target. Average inflation for year will be closer to 3 per cent," Subramanian said.

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Outlining the benefits of demonetisation, he said there are early signs as cash usage in the economy has come down.

"Has cash come down in economy? We seem to have achieved a 20 per cent reduction in the equilibrium cash holding which means that the cash-GDP ratio has come down by about 1.6 percentage points and this was one of the objectives of DeMo.

It is something quite substantial that has been achieved," he said.

He further said that 5.4 lakh additional taxpayers were added during post demonetisation, November 8-March 31.

"It represents about 1 per cent of taxpayers. It led to increase in number of taxpayers. The reported taxable income has not gone up by as much because many of these new filers are reporting a taxable income around the threshold. So whether this increase in taxpayer will lead to increased taxes remains to be seen," Subramanian said.

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Stating that providing remunerative minimum support price (MSP) for crops to farmers was needed, he said policies that prop up market prices above MSPs need to be looked at.

"In the policy mix we have to ask whether some forms of direct support could be part of policy mix. This farm stress has happened at the time of plenty," he added.

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