Economic Survey 2016: Strong chance of downside risk in estimates

New Delhi | Published: February 26, 2016 3:30:47 PM

The Economic Survey 2016 guides for lower growth projections in a increasingly difficult global environment and has encouraged strengthening of domestic stability.

The Economic Survey 2016 guides for lower growth projections in a increasingly difficult global environment and has encouraged strengthening of domestic stability.

Notwithstanding the risk the survey pegs GDP growth for FY16 at 7-7.75%, which in our view is a very wide projection given that only one quarter is remaining in the year. In the medium term it is projected at 7-7.5% and in the long term potential growth is shown to be at 8-10%.

The survey wants that the correlation of India growth cycle to global is high and there is strong chances of downside risk to the above estimate.

The survey document believe that given the context of domestic macro stability, there is scope for monetary policy easing. It also recommends that exchange rate should be depreciated to retain competitiveness in a similar fashion as other emerging economies.

The focus on agriculture development has been highlighted as a policy imperative.

Overall, the survey has highlighted the achievements of the government in the past two years and has attributed the slowness in growth to global factors. There is little to suggest how productivity and demand can be improved to regenerate growth from domestic impulses. In our view, the scope for monetary easing is limited due to persistent and acute shortfall in liquidity which could only get aggravated if as the Surveys projects, the global financial conditions worsens.

By Dhananjay Sinha Head, Institutional Research, Economist and Strategist | Emkay Global Financial Services Ltd

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.