For the current financial year (FY18), the survey expected growth to touch 6.75 per cent, higher than the Central Statistics Office’s first Advance Estimates of 6.5 per cent. If this turns out to be true, growth will be in the lower end of what the previous year’s Economic Survey predicted at 6.75-7.5 per cent.
Of the four principal drivers of growth, exports may well turn out to be main driver of growth in FY19, suggested the survey. And while on consumption demand, the outlook for FY19 remains muddled, the survey is optimistic about the revival of private capital expenditure cycle.
The recent revival in global demand has spurred exports from emerging markets, especially Asian economies. But India’s exports have lagged that of other emerging markets. However, the survey remains optimistic about the country’s exports prospects.
“The acceleration of global growth should in principle provide a solid boost to export demand,” notes the survey. Exports could add another 0.5 percentage points to growth, it adds. This is conditional upon two factors - one, if the relationship between India’s exports and world growth returns to that in the boom phase of the mid-2000s and two, if the world economy grows at 3.9 per cent as predicted by the IMF.
On a revival in private investments, the survey is optimistic, pointing out that “many of the factors exerting a drag on growth over the past year are finally easing off.” But an investment revival is conditional upon a quick resolution of bad debts. If stressed firms are “put in the hands of stronger ownership, allowing them to resume spending,” it could lead to an investment revival. A delay in resolution though will delay investment revival.
The outlook for consumption demand is a bit uncertain. On the one hand, private consumption demand is likely to benefit for a likely reduction in real interest rates in 2018-19, compared to the 2017-18 average.
On the other side, it is likely to be hemmed by higher oil prices. The IMF has predicted average oil prices in 2018-19 to be about 12 per cent higher. Now, assuming that the government does not offset the price rise by reducing taxes, higher oil prices will lower real incomes and thus, restrict household consumption. Further, higher oil prices, by spurring inflation, will necessitate a tighter monetary policy.
As the survey notes: “Persistently high oil prices (at current levels) remain a key risk. They would affect inflation, the current account, the fiscal position and growth, and force macroeconomic policies to be tighter than otherwise.”