New Delhi: Hailing the Economic Survey II 2016-17 for its “correct assessment” of the deflationary stress in the economy, India Inc on Friday said that there was a need for a substantial cut in the policy rates by the RBI.
“The Economic Survey-2 presented to Parliament has done a correct assessment of the state of the economy, highlighting the stress in various sectors such as power, telecom even as deflationary impulses are due to subdued demand,” Associated Chambers of Commerce and Industry of India (Assocham) Secretary General D.S. Rawat said.
He said the Survey has also rightly pin-pointed the moderation in growth in industrial output as also services, the key drivers of the economy. Both these sectors need some immediate steps like resolution of the bank non-performing assets (NPAs) and a pragmatic approach for the “twin balance sheet” problem, Rawat said.
Reforms like disinvestment of Air India and emphasis on raising non-fare revenue for the Railways are welcome suggestions along with those relating to education and health, he said.
The key takeaways from the Economic Survey are the higher end of the GDP growth forecast of 6.75-7.5 per cent looks unlikely in FY18, a structural shift in the inflationary process toward low inflation is underway, the RBI has overestimated the consumer price index (CPI)-based inflation by above 100 basis points in 6 of 14 quarters and the current repo rates are 25-75 bps above neutral rates indicating room for further reduction in repo rates.
The Federation of Indian Chambers of Commerce and Industry (Ficci) said: “The survey clearly lays out the opportunities and the risk factors that could have a bearing on the near to medium term growth performance of the Indian economy.”
“While developments such as introduction of GST, in principle decision to privatise Air India, steps taken to address the twin balance sheet problem and the continuous roll out of reforms across segments lend confidence, there is an element of anxiety on account of factor such as farm loan waivers, dip in non-cereal food prices and weakening performance of sectors such as power and telecommunications,” it said in a statement.
“The deflationary impulses in the economy need to be countered through all possible policy levers as identified in the Economic Survey.”
There is a need to substantially cut down the policy rates by the Reserve Bank of India and ensure its full transmission by the banks in the form of lower lending rates for consumption and investment activities, the industry body noted.
“A cut in interest rates would spur demand, push up capacity utilisation rates and help reduce pressure on the corporate balance sheets thereby enabling them to plan for fresh investments. Unless the private investment cycle revives, sustaining growth and generating jobs in large numbers will be difficult,” Ficci added.
Sunil Kumar Sinha, Principal Economist, India Ratings and Research said: “Survey correctly cautions about the series of deflationary impulses weighing on the economy due to looming twin balance sheet challenge, declining profitability in the sectors such as power or telecommunication sectors, the launch of the GST and demonetisation.”
Sinha said that however the survey fails to provide an answer that despite growing macro-economic stability and various policy initiatives taken by the government, how long will it take for India’s GDP growth to realise its potential.
