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Home News Budget Month 2 2016 2016 (2) This

Economy will continue to Weather Global Sluggishness with Resilience; Outlook of Multilateral Institutions positive for India

26-2-2016
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Multilateral Institutions in their latest assessments have underlined that in the short run, Indian growth may fall short of its growth potential of 8-9 per cent, but the economy could continue weathering the global sluggishness with resilience and consolidate the gains in macroeconomic stability in the year ahead. This is the Outlook in the Economic Survey 2015-16 presented today in Parliament by the Finance Minister Shri Arun Jaitley. The Survey highlights that with the focus on reforms in key sectors coupled with stable macroeconomic conditions, the growth prospect of 7.0 to 7.75 per cent in 2016-17 appears reasonable. Yet, the outlook will be conditioned by a number of factors and the strongest of them being weak global demand.

Economic Survey 2015-16 stresses that the external vulnerability indicators improved and the rupee weathered the depreciation pressure better than the currencies of most emerging market economies. The headwinds to growth may come from sluggish global demand as the Indian economy is closely integrated with the rest of the world. Exports and imports together constitute 42 per cent of the GDP, even at the reduced levels in 2015-16. On the brighter side, however, the composite growth of India’s trading partners is projected to modestly improve in 2016.

From the angle of aggregate demand, the survey underlines that domestic absorption has remained reasonably strong, despite reduction in overall investment. Private consumption has, of late, been the major driver of growth. The possible shifts on the consumption front in the next year are; first, consumption incentives flowing from declining oil prices may partially recede in the next year; second, the pay commission awards could potentially add modestly to consumption demand; third, an improved farm sector performance can add to rural consumption. However, it may be hard to endlessly expect significantly higher growth impetus from consumption.

Economic Survey 2015-16 stresses that Government’s focus on fiscal consolidation rightly limits the option of raising general government consumption expenditure. Private corporate savings and investment showed encouraging results in 2014-15; but the eventual outcome may also be influenced by indications of excess capacity in some sectors. However, with multifaceted measures from the government to foster industry and enterprises, investment-led growth should return.

The outlook in the Survey points-out that India’s external sector outcome continues to be strong and sustainable because of strong macroeconomic fundamentals and low commodity prices. This is significant in the wake of volatility in global financial markets and their spill overs causing shocks in vulnerable economies, mainly the recent bout of uncertainty owing to developments and concerns about China’s growth, financial markets and currency. The survey says, while export slowdown may continue for a while before picking up in the next fiscal, continuance of low global commodity prices augurs well for sustaining low trade and current account deficits. As a proportion of GDP, the CAD is likely to be in the low range of 1 to 1.5 per cent. It adds that deficit in the current account is likely to be more than fully financed through stable flows and the volatility in global financial markets may affect the exchange rate less than in other emerging economies.

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