The Survey said about financial end, there was scope for monetary easing and RBI had erred in its CPI inflation forecast,.
Part two of the Economic Survey for 2016-17, which was tabled for the first time after the financial year end, cautioned that achieving the upper end of projections for economic growth at 6.75-7.5 per cent for FY18 may be difficult.
It said there are downward risks to economic growth projected in Volume One of the Survey tabled in January.
The Survey, tabled by Finance Minister Arun Jaitley in the Lok Sabha on the last day of the monsoon session, said there is considerable scope for monetary policy easing and that the Reserve Bank of India (RBI) erred in its forecast of retail price inflation six out of the total 14 times.
However, the Arvind Subramanian-authored document said the Centre’s fiscal deficit is expected to decline to 3.2 per cent of GDP this financial year against 3.5 per cent a year ago, even as the lower dividend by the RBI to the government raised doubts over the projections, according to experts. The dividend fell by half compared to the previous financial year.
The Survey cautioned that anxiety reigns because a series of deflationary impulses are weighing on an economy, which is yet to gather its full momentum and is still away from its potential. These include stressed farm revenues, as non-cereal food prices have declined; farm loan waivers and the fiscal tightening they will entail; and declining profitability in the power and telecommunication sectors, further exacerbating the twin balance sheet problems.
The Survey said the structural reform agenda going forward include Air India privatisation and addressing the twin balance sheet problems.
It also said that public sector banks are engaged in damage control instead of looking for new clients.
Sluggish growth and increasing indebtedness in some sectors of the economy have impacted the asset quality of banks and this is a cause for concern. The gross non-performing advances (GNPAs) ratio of SCBs rose from 9.2 per cent in September 2016 to 9.5 per cent in March 2017, it pointed out.
The Survey noticed a rekindled optimism on structural reforms in the Indian economy.
Various factors such as the launch of the GST, positive impacts of demonetisation, in principle decision to privatise Air India, further rationalisation of energy subsidies, and actions to address the twin balance sheet challenge have contributed to this optimism.
The document also added that a growing confidence that macro-economic stability has become entrenched is evident because of a series of government and RBI actions and because structural changes in the oil market have reduced the risk of sustained price increases.