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The Economic Survey 2015-16 was tabled in the Parliament on February 26, 2016, by Mr Arun Jaitley, Union Minister for Finance, Government of India. The survey forecasts an economic growth rate of 7 to 7.75 per cent for FY17, as compared to the growth rate of 7.6 per cent in FY16. As per the Economic Survey, India will seek to adhere to medium-term fiscal deficit target of 3 per cent of the country's gross domestic product (GDP). A three-pronged strategy of promoting competition, investing in health and education while not neglecting agriculture will help India to achieve its long-term potential growth rate of around 8-10 per cent, said the survey.

Key Highlights:

Fiscal Deficit:

  • Fiscal deficit target of 3.5 per cent of GDP pegged for 2016-17
  • Fiscal deficit of 3.9 per cent 2015-16 of GDP seems achievable
  • India must adhere to medium-term fiscal deficit target of 3 per cent of GDP
  • Achieving fiscal target for 2016-17 seems challenging on account of additional outgo towards Seventh Pay Commission (SPC) and a slowing global economy
  • Fundamental task of the budget should be to preserve fiscal sustainability

GDP Growth:

  • GDP growth expected to accelerate between 7 and 7.5 per cent in 2016-17
  • Real GDP growth at 7.6 per cent in 2015-16
  • Gross Value Added (GVA) growth at basic prices 7.3 per cent in 2015-16
  • Long term potential GDP growth of eight to ten per cent is estimated

Inflation and monetary policy:

  • Average retail inflation, measured by Consumer Price Index (CPI), in 2015-16 (April – December) seen at 4.5- 5 per cent
  • Average Wholesale Price Index (WPI) inflation, in 2015-16 (April – December) seen at -3 per cent from 2 per cent in 2014-15
  • Reserve Bank of India (RBI) expected to meet 5 per cent inflation target by March 2017
  • With the easing of inflationary conditions, RBI cut the repo rate by 50 basis points to 6.75 per cent in September 2015
  • Prospect of lower oil prices over medium term likely to dampen inflationary expectations

External Sector:

  • During April-January 2015, India's exports declined by 17.6 per cent year-on-year and reached US$ 217.7 billion due to sluggish global demand and low global commodity prices
  • During April-January 2015, imports also declined by 15.5 per cent year-on-year to US$ 324.5 billion
  • In 2016-17, Current Account Deficit (CAD) is expected to be at 1-1.5 per cent of GDP
  • Export growth negative due to weak global scenario
  • To counter increased trade deficit, the government announced several initiatives aimed at boosting India's exports

Performance of key sectors:

  • Agriculture and food management:
    • Agriculture and allied activities remain the major source of livelihood for nearly half of the Indian population. The share of agriculture in employment was 48.9 per cent of the workforce and its share in the Gross Domestic Product (GDP) was 17.4 per cent in 2014-15.
    • India has emerged as a significant agricultural exporter of commodities such as cotton, rice, meat, oil meals, spice, guargum meal and sugar. As per the World Trade Organisation's (WTO's) Trade Statistics, the share of India's agricultural exports and imports in the world trade in 2014 were 2.46 per cent and 1.46 per cent respectively.
    • Agricultural exports as a percentage of agricultural GDP increased from 7.95 per cent in 2009-10 to 12.08 per cent in 2014-15.
    • Food grain production for 2015-16 is estimated at 253.16 million tonnes (MT); higher by 1.14 MT over the production of 252.02 MT during 2014-15.
  • Industries, corporate and infrastructure sector:
    • Industrial sector registered a growth of 5.9 per cent during 2014-15, against a growth of 5.0 per cent during 2013-14. The growth of industrial sector is estimated to be 7.3 per cent during 2015-16, with manufacturing sector growing at 9.5 per cent.
    • As per Index of Industrial Production (IIP), the industrial sector broadly comprising mining, manufacturing and electricity attained 3.1 per cent growth during April-December 2015 as compared to 2.6 per cent during the same period of 2014 due to the higher growth in mining and manufacturing sectors.
    • The government has launched several initiatives to boost industrial growth such as ease of doing business, Make in India, Invest India, and e-biz Mission Mode Project.
    • Production of raw coal during April-December 2015 increased 4.7 per cent year-on-year to 447.48 MT. Higher domestic production has significantly helped to bring down coal imports.
    • Basic metals and metal production grew by 7.3 per cent and 8.8 per cent in 2014 and 2015 respectively.
    • During 2014-15, total electricity generation of 1,048.4 billion units (BU) exceeded the target of 1,023 BU, registering a growth of 8.4 per cent over previous year.
    • Under National LED Programme launched in January 2015, the number of LED bulbs/ streetlights installed were 47.7 million under Domestic Efficient Lighting Programme (DELP) and 0.55 million under Street Lighting National Programme (SLNP)
  • Services sector:
    • The services sector contributed 66.1 per cent of India's GVA growth in 2015-16.
    • India has shown fastest growth in the services sector over 2010-14, with a compound annual growth rate (CAGR) of 8.6 per cent followed by China at 8.4 per cent.
    • In 2014-15, foreign direct investment (FDI) inflows to the services sector grew by 70.4 per cent to US$ 16.4 billion.
    • India is the eighth largest services exporter in the world. India's services exports grew from US$ 16.8 billion in 2001 to US$ 155.6 billion in 2014, constituting 7.5 per cent of the GDP.

Public Finance:

  • Revenue Receipts during FY 2015 and FY 2016 were Rs 11 lakh crore (US$ 160.04 billion) and Rs 11.4 lakh (US$ 165.86 billion) crore respectively
  • Gross tax revenue during FY 2016 is estimated to be Rs 14.48 lakh crore (US$ 210.67 billion)
  • The growth in indirect tax collections is estimated to be 19.5 per cent over 2015-16

Subsidies and the JAM Number Trinity Solution:

  • The total subsidy bill as a proportion of GDP is expected to be below two per cent of GDP in 2015-16. The 1.7 per cent decline in major subsidies was due to a near 44.7 per cent decline in petroleum subsidy during April – December 2015.
  • Food Subsidy Bill stands at Rs 105,509.41 crore (US$ 15.35 billion) during 2015-16 (up to January, 2016).
  • JAM Number Trinity – Jan Dhan Yojana, Aadhaar, Mobile can enable the State to transfer financial resources to the poor in a progressive manner without leakages and with minimal distorting effects. In 2014-15, JAM was involved in distributing benefits to 20 per cent of India's population across a range of government programs, from education and labour schemes to subsidies and pensions. Total amount disbursed through JAM was Rs 44,035 crore (US$ 6.4 billion).

Financial Intermediation:

  • The benchmark 10-year sovereign yield started the year at 7.78 per cent, reached its highest level of 7.99 per cent on May 12, 2015, before falling to a two-year low of 7.48 per cent after a 50 bps rate cut by the RBI on September 29, 2015.
  • During FY 2015-16, year-on-year growth in gross bank credit outstanding has remained at around 10 per cent.
  • Scheduled commercial banks (SCB) reduced their median-term deposit rate by 72 bps and median base rate by 60 bps up to December 15, 2015 in response to the reduction in the policy repo rate by 125 bps since January 2015.
  • On account of the government's initiative under the Pradhan Mantri Jan Dhan Yojana (PMJDY), basic savings bank deposit accounts (BSBDAs) reached 441 million for the period ended September 2015 as against 398 million for the year ended March 2015. The total number of banking outlets went up from 553,713 as at end-March 2015 to 567,530 as at end-September 2015.
  • Three schemes were launched in 2015 in the insurance and pension sectors for creating a universal social security system for all Indians, especially the poor and underprivileged. These were the Pradhan Mantri Suraksha Bima Yojana (PMSBY), the Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and the Atal Pension Yojana (APY).
  • Reforms in the financial sector
    • The Forwards Markets Commission (FMC) has been merged with the Securities and Exchange Board of India (SEBI) with effect from September 28, 2015 to achieve convergence of the regulation of the securities and commodity derivatives markets and increase the economies of scope and scale for exchanges, financial firms and other stakeholders.
    • The Insolvency and Bankruptcy Code 2015 has been introduced in the Parliament on December 21, 2015. The bill seeks to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner.

Key Government initiatives to boost economic growth:

  • Government is looking to facilitate a host of initiatives, including the new bankruptcy law, rehabilitation of stalled projects, proposed changes to the Prevention of Corruption Act as well as the broader JAM (Jan Dhan, Aadhaar and Mobile governance) agenda
  • Diesel prices have been de-regulated
  • Increase in wages recommended by the Seventh Pay Commission
  • Cooking gas subsidy has been replaced by direct transfer
  • Several initiatives taken which to transform the infrastructure sector
  • Reforms to be implemented to fertiliser subsidy
  • Standard deduction and exemptions to be phased out in an orderly manner in due course
  • Higher property tax rates may be implemented
  • Reasonable taxation from rich agriculturalists
  • More emphasis to be given on widening the tax base

Click here for more details on the Economic Survey 2015-2016.