Economic Survey: Direct dole to cost 5 per cent of GDP

02 February, 2017, 00:40 | Author: Celia Hoffman
  • Finance Minister Arun Jaitley will table Economic Survey today

The Survey has, however, projected the growth rate for 2017-18 at 6.75-7.5 per cent.

The Economic Survey 2016-17 presented to parliament today has finally provided some official numbers on the impact of demonetisation on the economy and the time lag for an expected recovery.

The Economic Survey, written by the finance ministry's chief economic adviser Arvind Subramanian, says that a UBI would promote social justice, and empower the country's poor - as Business Insider first reported at the start of January.

The survey also pointed to three major risks to growth-a rise in crude oil prices, demonetisation and trade tensions among major countries.

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By contrast, the International Monetary Fund slashed its India growth forecast for the current fiscal year by a full point to 6.6 per cent, handing the title of the world's fastest-growing economy back to China, which reported 6.7 per cent growth for 2016. Judging how quickly the economy will recover has been a tough call for economists.

Detailing the impact of demonetisation on the economy, the Survey said, short-term costs have taken the form of inconvenience and hardship, especially those in the informal and cash-intensive sectors of the economy which have lost income and employment. While the slowdown in economic activity has constrained GDP growth, it seems the Government is committed to achieving the fiscal deficit target of 3.5 percent in 2016-17. While the Survey is optimistic about exports due to expectations of a fiscal stimulus by the USA, he said India was quite vulnerable to restrictions on services. Comparing demonetisation to a stick, the Survey said the government should use GST, lower taxes and better tax implementation as carrots to complement it. For this, the report prepared by the Chief Economic Advisor and his team has suggested full remonetisation at the earliest and complementary measures such as reducing income tax rates. "The consequent squeeze of banks has led them to slow credit growth to crucial sectors - especially to industry and medium and small scale enterprises (MSMEs) - to levels unseen over the past two decades", the survey said.

The survey added that these sectors provide enormous opportunities for creation of jobs for the weaker sections, especially for women, and can become vehicles for broader social transformation in the country. This year, for instance, the survey is widely expected to recommend the rollout of Universal Basic Income (UBI), a poverty alleviation plan involving direct money transfer to people's bank accounts. The survey also said that bank deposits increased sharply and predicted that deposits will decline, but probably settle at a slightly higher level. However, according to the Survey, India might not need to walk down this path as inflation in India continues to be higher than the global standards and hence counter-cyclical policies will have to be more sensitive towards triggering higher inflation with any policies aimed to boost demand.

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