The Chief Economic Adviser to the Finance Ministry, Arvind Subramanian, has cautioned against the current bull market rally. “I will not say bubble, but we have to be watchful,” he said.

Economic Survey 2017-18 has drawn pointed attention to the “elevated stock prices” and said that a sharp correction would provoke a sudden stall in capital flows and pose a challenge to its GDP growth estimate of 7-7.5 per cent in 2018-19.

“We have to be very careful about it. It is one thing to say we want democratised shareholding, but you also don’t want it to happen in the context of the small savers being impacted…it can end up discrediting the markets,” he told BusinessLine in an interview a day after the Economic Survey was tabled in Parliament by Finance Minister Arun Jaitley.

The BSE Sensex rose 232.81 points on Monday to close at a record high of 36,283.25, while the Nifty ended at 11,130.40.

On Tuesday, however, markets fell as investors turned cautious ahead of the Budget. The Sensex sank about 250 points, while the broader NSE Nifty fell 80 points.

8% growth trajectory

Returning to an 8 per cent growth trajectory may be possible in the medium term, Subramanian said, adding that it can happen with stabilisation in the GST (Goods and Services Tax) regime, resolution of the ‘twin balance sheet problem’ and a pick-up in the world economy.

Ahead of the Union Budget on February 1, Subramanian also called for “a gentle consolidation in both the debt and deficit” of the Central government in the coming fiscal.

“It is an election year. So the pure economic calculation of aggressive consolidation cannot ignore the political reality,” he said, adding that the government will have to take a call on the extent of fiscal consolidation.

According to an earlier roadmap, the Centre planned to lower its fiscal deficit to 3.2 per cent in 2017-18 and further to 3 per cent in 2018-19. “I am not a big believer in one number for the debt or deficit,” he stressed.

The Chief Economic Adviser was also optimistic about the disinvestment plans of the Centre and said that proceeds from the stake sale would be higher than the estimated ₹72,500 crore for this fiscal.

He also stressed that the government should complete the strategic sale of state-owned Air India in 2018-19, which the Survey has underlined as an agenda for the government in the coming fiscal.

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