Economic Survey: FY18

Transcription

1 Ecnmic Survey: FY18 Cntact: Madan Sabnavis Chief Ecnmist Kavita Chack Senir Ecnmist Dr. Rucha Ranadive Assciate Ecnmist Manisha Sachdeva Assciate Ecnmist Shivam Kaushik Assciate Ecnmist Mradul Mishra (Media Cntact) Disclaimer: This reprt is prepared by CARE Ratings Ltd. CARE Ratings has taken utmst care t ensure accuracy and bjectivity while develping this reprt based n infrmatin available in public dmain. Hwever, neither the accuracy nr cmpleteness f infrmatin cntained in this reprt is guaranteed. CARE Ratings is nt respnsible fr any errrs r missins in analysis/inferences/views r fr results btained frm the use f infrmatin cntained in this reprt and especially states that CARE Ratings has n financial liability whatsever t the user f this reprt The Ministry f Finance tday released the Ecnmic Survey fr the year The cuntry is seen t be amngst the best perfrming ecnmies, supprted by higher grwth, lwer inflatin, imprved current accunt balance and reductin in fiscal deficit rati t GDP. In additin t this, the Survey highlights that refrms including implementatin f Gds and Service tax (GST), majr recapitalizatin package, intrductin f Inslvency and Bankruptcy Cde t slve Twin Balance Sheet prblem, liberalizatin f FDI cupled with exprts grwth n accunt f glbal recvery has been prpelling the dmestic ecnmy in the secnd half f the fiscal year. The Survey, while prjecting an imprvement in the dmestic ecnmic cnditins fr the n-ging and ensuing fiscal year has als highlighted the pertinent risks faced which culd cnstraint and challenges nt nly the ecnmic grwth but als the gvernment s and regulatrs management f the fiscal situatin and macr-ecnmic stability. It als calls attentin t the need f addressing delays, pendency and backlgs in the appellate and judicial areas in rder t imprve business envirnment in the cuntry and stresses n requirement f crdinated actin between the gvernment and judiciary t bst the ecnmic activity. The key highlights f the survey in terms f perfrmance, GST review, develpments, challenges and utlk have been summarized here. A. Acceleratin in grwth in H2 FY18 Althugh verall ecnmic perfrmance in FY18 is expected t be weaker than that in FY17 and belw ptential grwth, there has been a quickening in dmestic ecnmic grwth since the secnd half f the n-ging fiscal year as per the assessment f the ecnmic survey. With the average GDP grwth f 7.5% between FY15-17, the Indian ecnmy can be regarded as ne f the best perfrming ecnmies in the wrld. Real GDP in FY18 expected t be 6.75%, higher than the 6.5% grwth prjected in the first advance estimate f the Central Statistical Office (CSO). January 29, 2018 I Ecnmics As per CSO estimate the GVA at cnstant basic prices is expected t grw by 6.1% in FY18 as against the grwth f 6.6% in FY17. The lwer grwth can be ascribed t subdued grwth in agriculture and allied (2.1%) and industry (4.4%). Agriculture sectr grwth in FY18 is likely t be 2.1% than 4.9% grwth in FY17.

2 Ecnmics I Ecnmic Survey: FY18 Industrial sectr is expected t clck a grwth f 4.4% in FY18 (FY17: 5.6%). The imprved industrial grwth in Q2 FY18 helped reverse the decline in GDP grwth f the earlier quarter. Services sectr is pised t see a grwth f 8.3% this fiscal year than 7.7% in FY17. In the first half f FY18, the GDP grwth was 6% while the GVA grwth was 5.8%. There wuld be further recvery in the ecnmy with higher expected grwth in grss fixed investments and exprts. In H2-FY18, the GDP grwth is likely t be 7% while the GVA grwth wuld be 6.4%. The grwth in nminal GDP in FY17 is estimated t be 11% and it is expected at 9.5% in FY18 n accunt f bth lwer real grwth as well as lwer value f deflatr in FY18. The ecnmy has witnessed subdued savings and investment rates. The investment rate declined by 5.6 percentage pints while the savings rate has fallen by 2.3 percentage pints during FY12 t FY16. CPI inflatin declined t 3.3% in FY18 (Apr-Dec), lwest in the last five years, as against 4.8% in crrespnding perid in FY17 due t lwer fd inflatin, especially pulses and vegetables. In Apr-Dec 17, the Whlesale Price Index (WPI) based inflatin was at 2.9% cmpared with 0.7% in Apr-Dec 16. In August 17, the Mnetary Plicy Cmmittee (MPC) decided t cut the rep by 25 bps t 6%, which was held steady in the subsequent mnetary plicy meetings. Perfrmance f Public Sectr Banks cntinued t be subdued in the current financial year. GNPAs increased frm 9.6% t 10.2% between Mar 17 t Sept 17. Imprvement in grwth f nn-fd credit t 8.85% in Nv 17 cmpared with the 4.75% grwth in Nv 16. Credit utg t services and persnal lan segment cntributing t the verall credit grwth. India s external sectr witnessed sme imprvement in FY18 s far. In H1-FY18, CAD was 1.8% f GDP, merchandise exprts grew by 12% while net freign investments grew by 17.4%. CAD increased frm 0.4% in H1-FY17 t 1.8% in H1-FY18 primarily due t higher trade deficit fllwing increase in merchandise imprts relative t exprts. Imprts surged wing t rise in gld imprts and increase in crude il prices in the internatinal markets. The higher cst f imprts in the nging fiscal year culd ffset the imprvement in exprt grwth in FY18. Grwth in services exprts at 16.2% during Apr-Sept 17, significantly higher than the 5.7% grwth in FY17. Net services receipts rse by 14.6 % in and the Net surplus in the services financed arund 49% f India s merchandise deficit in H1 f Trade deficit widened in H1 FY18 t $74.5 bn frm $ 43.4 bn in H1 FY17. The Balance f Payment (BP) situatin in H1-FY18 was seen as being cmfrtable, despite rise in CAD (current accunt deficit) in Q1 FY18. With capital flws remaining at healthy levels, the freign exchange reserves steadily increased and std at US$ billin n 12 th January In FY18 the rupee indicated appreciating trend and strengthened by 2.5% t Rs per dllar in December 17 frm the level f Rs per US dllar during March 2017 n the back f significant capital flws. Rs. 20,339 crre apprved fr interest subventin t farmers in FY18. 2

3 Ecnmics I Ecnmic Survey: FY18 Table 1: Snapsht f Macrecnmic Indicatrs FY15 FY16 FY17 FY18 GDP grwth (at cnstant market prices) ^ GVA at basic prices ^ Agriculture, frestry and fishing ^ Industry ^ Services ^ Inflatin (WPI) * Inflatin (CPI) * Index f Industrial prductin Savings rate na na Capital Frmatin na na Current Accunt Balance # Frex Reserves($ billin) $ Exprts * Imprts * Surce: Ecnmic Survey ^ first advance estimate * Apr-Dec Apr-Nv 17 #Apr-Sept 17 $ As f 29 Dec 17. B. Fiscal develpments The expansin f Grss Fiscal Deficit t 112% f target in the first 8 mnths f the fiscal year was n accunt f the frnt lading f expenditure in the earlier mnths alng with the early pick up in expenditure and higher interest utg, a gd part f which is expected t nrmalize as the year prgresses. All the state s taken tgether may be able t meet their fiscal deficit target fr The indirect taxes have grwn by 18.3% till Nvember 17, higher than the budgeted grwth f 7.6% in FY18. Hwever, the eventual grwth will be cntingent upn the final settlements f the GST accunts. In FY18 (Apr-Nv), the ttal expenditure grew by 14.9% as against the grwth f 12.6% in the cmparable perid in the previus fiscal. The revenue expenditure grew by 13.1% and capital expenditure by 29.3% during Apr-Nv 17. The Ecnmic Survey has stated that a pause in the gvernment fiscal cnslidatin cannt be ruled ut (Grss fiscal deficit t GDP target fr FY18 was set at 3.2% fr FY18 and 3% in FY19). C. Achievements f key refrms and perfrmance f key prgrams GST and Demnetizatin There has been an increase in base f direct and indirect tax payers. 1.8 mn additinal direct (incme) tax payers since Nv % (r 3.4 mn) increase in indirect tax payers. Large increase in registratin by small enterprises in rder t avail f the input tax credit fr their purchases frm large enterprises. Frmal nn-agricultural wrkfrce share increased frm 31% t 53%. The cllectin rate s far has been able t maintain the revenue neutrality f the tax implementatin. The weighted average cllectin rate at 15.6% (based n the average cllectins in the first few mnths) is in line 3

4 Ecnmics I Ecnmic Survey: FY18 with the estimates required t maintain revenue neutrality (15-16% as per the Revenue Neutral Rate cmmittee). Grwth in direct tax cllectin at 13.7% and indirect tax cllectins at 18.3% during the first 8 mnths f the fiscal n track t meet targets. The States share in taxes grew by 25.2% during April-Nvember 2017, higher than the grwth in net tax revenue (t Centre) at 12.6% and f grss tax revenue at 16.5%. Demnetizatin has led t a rise in financial savings. Ease f ding business There has been an imprvement in India s ranking in Wrld Banks Ease f Ding Business by 30 places t be within the tp 100. India leaped 53 and 33 spts in the taxatin and inslvency indices respectively (n accunt f GST and IBC). Hwever, there has been n majr imprvement in enfrcing cntracts. The rank has nly marginally imprved by 8 ranks t 164. High number f delays and pendency f ecnmic cases in the Supreme Curt, Ecnmic Tribunals and Tax department seen t be taking a severe tll n the ecnmy, in terms f stalled prjects, munting legal csts, cntested tax revenues and reduced investment. Measures t cntrl inflatin Retail inflatin mderated t 6 year lws in (first 9 mnths) Actin by state gvernments against harding and stacking and enfrcement f Essential Cmmdities Act. Hlding high level regular review meetings n price and availability situatin. Higher MSP t incentivize prductin and enhance availability which wuld help mderate prices. Price Stabilizatin Fund (PSF) t cntrl price vlatility f agricultural cmmdities like pulses, nins etc. Enhancement in buffer stck f pulses, stck hlding limit fr sugar, exprt duty (20%) n sugar, permit exprt f nin nly n letter f credit Rebate f State Levies (ROSL) Increased exprts f ready-made garments (man-made fibers) by abut 16% but nt f thers. Refrms t attract Freign Direct Investment (FDI) FDI equity inflws t the services sectr grew by 15.0% during the first 7 mnths f the sectrs als including services activities and cvering 100 areas f FDI plicy have undergne refrms. Refrms undertaken t make India an attractive investment destinatin include Natinal Intellectual Prperty Rights (IPR) plicy, GST implementatin and refrms fr ease f ding business. Service sectr grwth The service sectr has be the driver f ecnmy. The sectr which has a share f 55.2% in Grss Value Added (GVA) t cntribute 72.5% t GVA grwth in Initiatives in the different Services which include digitizatin, e-visas, infrastructure status t Lgistics, Start-up India, Schemes fr the husing sectr, etc, bsting grwth in the sectr. 4

5 Ecnmics I Ecnmic Survey: FY18 D. Develpments in Trade plicy : FY18 Trade plicy: Tw majr develpments including Mid-term review f Freign Trade Plicy (FTP) and multilateral negtiatins f WTO in December 17 A special package fr emplyment generatin in leather and ftwear sectr was apprved by the Gvernment in rder t bst exprts in this sectr cupled with sme develpments in the lgistics frnt and antidumping measures. E. Strnger Ecnmic Grwth Outlk fr FY19 The ecnmic survey fresees an imprvement in India s ecnmic prspects in the upcming fiscal year and expects it t be in the range f % in FY19. The survey is relying n higher exprts and a revival in private investments t prpel grwth. The Survey highlights the need and imprtance f a revival in investments (even at the cst f savings) t stimulate ecnmic grwth. We expect grwth f 7.5% in FY19. F. Risk Facing Ecnmic Revival The ecnmic survey has highlighted the ptential risks faced by the ecnmy that culd impact the pace and extent f revival. Elevated crude il prices While this culd increase ur il imprt csts, widen ur current accunt deficit, and raise inflatin, it culd benefit ur petrleum exprts. It culd lead t plicy tightening and lead t plicy challenges fr maintaining grwth and stability. Sudden crash in (elevated) glbal stck prices that culd result in a sharp fall in freign capital inflws. This culd have adverse implicatins fr the rupee. G. Plicy recmmendatins fr the gvernment The Ecnmic Survey has put frward certain plicy suggestins and guidelines fr the gvernment. As the gvernment is nt bligated t fllw these, it needs t be seen if the suggestins find mentin in the cming plicy annuncements. Emplyment, Educatin & Agriculture (increase farm prductivity & agricultural resilience) t be the areas f fcus fr the medium term. Privatize Air India. Cmplementary refrms fr the Twin Balance Sheet (TBS) prblem privatizatin f unviable banks. Stabilizing the GST. Strengthen exprts and private investments. Fr imprving Ease f Ding Business (i) expanding judicial capacity in lwer curts and lwer burden f High Curts and The Supreme Curt (ii) Limit n appeals by tax department (iii) mdernizatin and digitizatin f judiciary (iv) create mre subject-matter and stage-specific benches t cmbat pendency and delays. Need fr Fiscal Federalism and accuntability increased tax cllectins by the lcal gvernment which is currently very lw needs t increase. CORPORATE OFFICE: CARE Ratings Limited (Frmerly knwn as Credit Analysis & Research Ltd) Crprate Office: 4th Flr, Gdrej Cliseum, Smaiya Hspital Rad, Off Eastern Express Highway, Sin (East), Mumbai ; CIN: L67190MH1993PLC Tel: I Fax: care@careratings.cm I Website: Fllw us n /cmpany/care Ratings /cmpany/care Ratings 5