India is a haven of stability and one of the few outposts of opportunity in the world but enhancing growth in the next fiscal will be a challenge, Chief Economic Adviser Arvind Subramanian said.
“Going forward, growth will be a bit challenging. This fiscal, consumption increased partly due to the decline in oil prices. While exports will be better in 2016-17 than this fiscal, private investment will be weak,” he said on Friday, after the Mid-Year Economic Review 2015-16 was tabled in Parliament.
In 2016-17, a more relaxed fiscal and monetary policy, along with a continued focus on economic reforms to boost demand side of the economy, would be needed, he said.
Subramanian, who is the chief author of the Review, said the economy is sending mixed signals and it is difficult to ascertain the extent of recovery.
“At the moment, the economy is being powered by private consumption and public investment…the challenge going forward will be how to revive private investments,” he said, adding that the decline in nominal GDP growth too has created a new challenge for the economy.
Subramanian’s comments, which come in the midst of the preparations for the Union Budget 2016-17, point to a more prudent forecast of the economy while highlighting a more stable macro economic scenario.
Inflation has moderated significantly and is now at about 5 per cent while the fiscal deficit will be contained at 3.9 per cent of the GDP in 2016-17, he said. However, fiscal consolidation will come under stress due to the implementation of Seventh Pay Commission recommendations and One Rank One Pension scheme, lower revenue collections due to decline in nominal GDP and not-so-strong private investment.
“Nominal GDP growth has declined very substantially — how do we fill in this deficiency in demand? The role of fiscal and monetary policy in such a scenario becomes a very important issue that all of us need to think about it,” he said, adding that no decision on fiscal consolidation has been taken.
“We see very changed circumstances and it may not entail continuing with the fiscal consolidation. But if the demand outlook is more challenging, it will have to be delayed. But the Mid-Year Review is not advocating any position,” he said.
Subramanian also cautioned that global crude oil prices may not decline further while maintaining, if not accelerating the public investments will be another stress for the fiscal.
He also pitched for continuing economic reforms to boost supply and capacity of the economy. GST, bankruptcy code and measures to boost agriculture output would be the key, he said.