Economic Review 2: 7.5 percent growth rate difficult, scope of reduction in interest rates

New Delhi: The second part of the Economic Review for the financial year 2016-17 was presented on the last day of the monsoon session of Parliament. In the second part of the review it has been said that the rate of growth of 7.5 percent is probably difficult. On the other hand, in the review it is also believed that there is scope for further reduction in interest rates. It means that achieving the higher level of estimation of the growth rate can be difficult. The first part of the Economic Review was presented before the general budget on January 31, in which during the financial year 2017-18, the growth rate was estimated to be between seven to 7.5 percent.

There are three main reasons for the risk of moving down the growth rate in the economic review. First, the impact of farming turn on earnings, due to lower prices of agricultural products except grains. Second, the debt waiver for the farmers affected the state’s expenditure and third, the reduction in the profits of electricity and telecom companies. Due to these, economic development has not achieved its full speed and is still far from the possibilities.

demonetisation
In the review about the demonetisation, it has been said that some problems may arise in a short time, but in the long run, it will get positive effect. Keep in mind that after the removal of old notes of Rs 500 and Rs 1000 on November 8, 2016, the impact on the economy was anticipated. The prospect was strongly supported by the anticipated growth rate of 7.1 per cent, down from the growth rate of 7.6 per cent in the business year ending March 31, but due to economic review, it seems that these fears do not last long.

Inflation rate

In this review, it has been stated that retail inflation may be less than 4% in the end of fiscal year 2017-18 ending March 31, 2018. The Reserve Bank estimates that retail inflation will be close to four per cent. It has been said in the review that considering the retail inflation rate, there is the scope of reduction in interest rates. Let us tell you that in the beginning of August, the Reserve Bank governor-led monetary policy committee announced quarterly reduction in policy interest rate (repo rate at which rate the Reserve Bank lends to banks for a very short period). did. This was the first cut since October 2016.

Retail inflation is a major factor for shifting policy interest rates. According to the agreement between the government and the Reserve Bank, there is a target of keeping retail inflation at two to six percent (4% + 2%), while retail inflation for the month of June was 1.54 percent, i.e. even from the lower limit of the target Less. After this, there is a pressure to reduce the policy interest rate.

A good news in the review is also on the financial front, where it has been said that the central government will be able to maintain its financial standing (gap between income and expenditure) at 3.2% level. During the financial year 2016-17, the rate was 3.5 percent.

Structural improvement

Referring to various structural reforms, the review said that in addition to GST and commodity and service tax, Air India disinvestment, rationalization of subsidy and hassle of debt market (in technical language, which is called Twin Balance-Sheet Problem or TSB. Here, the companies are unable to pay the debt due to the deficit, but due to the overpayment of the loan, the bank can not afford to pay the debt openly). Since the ban, the number of tax payers has increased to 54 lakh.

Agricultural debt waiver

It has been said in the review that the loan forgiveness of farmers in the whole country can be reached from 2.2 to 2.7 lakh crore if it is talked about the debt waiver of the farmers. Please also tell you that this time different states like Uttar Pradesh, Maharashtra and Punjab are declaring a debt waiver at their level, whereas in 2007-08, the central government has given loans to farmers for the entire country at their own level. An apology was made. The review says that the debt waiver of farmers can reduce the demand by 0.7 per cent (GDP).