Risks to growth: mid-year economic concerns
Given the recent policy changes, the CEA has done right to flag mid-year concerns
Five months after the Economic Survey 2016-17 was released, Chief Economic Adviser Arvind Subramanian has presented the second volume of the annual economic review-cum-prognosticatory report. With the intervening period having provided a wealth of data points and policy developments, including the momentous roll-out of the Goods and Services Tax, there was a clear need to update and refresh outcomes and forecasts. And his outlook for growth in the current financial year has clearly turned more sombre. While Volume I had projected the gross domestic product expansion in 2017-18 in a range of 6.75-7.5%, the CEA has had to take cognisance of several new factors that have contributed to his diagnosis: “that the balance of risks seem to have shifted to the downside” with a far lower likelihood of growth being “closer to the upper end”. A quick look at each of the risks that Mr. Subramanian has cited shows it is going to be hard to find a ‘magic bullet’ fix that encompasses most of the concerns. For instance, the continuing appreciation of the rupee’s real exchange rate means exporters are increasingly going to find themselves struggling to compete on pricing against competitors from countries whose currencies have weakened against the dollar and the euro. And this even while the recovery in global trade demand is still to acquire more robust momentum. Another dampener, according to the CEA, would be the increasing stress to balance sheets that companies in the power and telecom sectors have to contend with, and the deflationary bias to activity that such stress would impart.
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