Economic Survey 2016 – Everything You Need to Note

The Economic Survey, prepared by Chief Economic Adviser Arvind Subramanian, has been tabled in Parliament three days ahead of budget.

Highlights of Economic Survey 2016

  • The survey pointed out that over Rs 1 lakh crore worth subsidies go to the well-off and advocated that they should be cut for better fiscal welfare management.
    • It said the benefits were given to the well-off on small savings schemes and tax or subsidy policies on six commodities — cooking gas, railways, power, aviation turbine fuel, gold and kerosene.
  • Economic Survey 2015-16 projects that the real GDP growth for the current financial year and for 2016-17 will be in the range of 7-7.75 per cent.
  • The government can achieve FY16 fiscal deficit target of 3.9 per cent of GDP.
  • he government should review its medium-term fiscal strategy, in view of the 7th Pay Commission salary hike proposal and upcoming recapitalization of banks.
  • Consumer price or retail inflation is seen around 4.5 to 5 per cent in FY17 as against 4.9 per cent between April to January 2016. Inflationary expectations are muted because of the weakness in crude oil prices.
  • India’s current account deficit is seen around 1-1.5 per cent of GDP in FY17.
  • The rupee’s fair value can be achieved through monetary relaxation. India needs to prepare itself for a major currency readjustment in Asia in wake of a similar adjustment in China.
  • Stretched corporate and bank balance sheets have affected the prospects for reviving private investments.
  • Tax exemptions should be phased out and tax base should be widened from current 5.5 per cent of earning individuals to more than 20 per cent. Tax revenue will be higher than budgeted levels in FY16.
  • In order to take advantage of the democratic dividend and meet growing aspirations of those entering the workforce, the economy needs jobs that are good, safe, productive and well paying.
  • The Economic Survey enumerated three downside risks- turmoil in global economyThe Economic Survey could worsen the outlook of exports, oil prices rise would increase the drag from consumption and the most serious risk is combination of the above two factors.

FISCAL DEFICIT

* 2015/16 fiscal deficit seen at 3.9 percent of GDP seems achievable
* 2016/17 expected to be challenging from fiscal point of view
* Credibility and optimality argue for adhering to 3.5% of GDP fiscal deficit target

INFLATION

* CPI inflation seen around 4.5 to 5% in 2016/17
* Low inflation has taken hold, confidence in price stability has improved* Expect RBI to meet 5 percent inflation target by March 2017
* Prospect of lower oil prices over medium term likely to dampen inflationary expectations
* Low inflation has taken hold, confidence in price stability has improved

CURRENT ACCOUNT DEFICIT

* 2016/17 current account deficit seen around 1-1.5% of GDP

CURRENCY

* Rupee’s value must be fair, avoiding strengthening; fair value can be achieved through monetary relaxation
* India needs to prepare itself for a major currency readjustment in Asia in wake of a similar adjustment in China
* Gradual depreciation in rupee can be allowed if capital inflows are weak

TAXES

* Proposes widening tax net from 5.5% of earning individuals to more than 20%
* Tax revenue expected to be higher than budgeted levels in FY15/16
* Easiest way to widen the tax base would be not to raise exemption thresholds
* Favours review and phasing out of tax exemptions

BANKING & CORPORATE SECTOR

* Estimated capital requirement for banks likely around Rs 1.8 trillion by 2018/19
* Corporate, bank balance sheets remain stretched, affecting prospects for reviving private investments
* Underlying stressed assets in corporate sector must be sold or rehabilitated
* Govt could sell off certain non financial companies to infuse capital in state-run banks
* Govt proposes to make available 700 bln rupees via budgetary allocations during current, succeeding years in banks
* Govt could sell off certain non financial companies to infuse capital in state-run banks
* Govt proposes to make available 700 bln rupees via budgetary allocations during current, succeeding years in banks

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