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Indian-Commodity  :  Economy  :  GVA to expand by 7.3% in FY18 with risks evenly balanced: RBI

GVA to expand by 7.3% in FY18 with risks evenly balanced: RBI (31-Aug-2017)

Ahead of the release of the gross domestic product (GDP) data for the first quarter of 2017-18, the Reserve Bank of India (RBI) in its annual report for 2016-17 has stated that with risks evenly balanced, the economic activity as measured by Gross Value Added (GVA) is expected to expand by 7.3% in the fiscal year 2017-18, up from 6.6% in 2016-17. It said that favorable domestic conditions are mainly expected to enable a quicker pace of overall economic activity during the year. It also expects the headline inflation to be in the range of 2-3.5% in the first half of 2017-18 and 3.5-4.5% in the later half.

The annual report said that continuing re-monetisation should enable a pickup in discretionary consumer spending, especially in cash-intensive segments. Government spending continued to be robust, cushioning the impact of a slowdown in other constituents. It also said that expected normal monsoon and the resultant replenishment of reservoirs, policy initiatives of the government such as hike in minimum support prices (MSPs) and increasing crop insurance coverage are likely to help in boosting crop production and supporting rural demand.

The central bank further said that in the fiscal sphere, while the gains to growth, efficiency and tax buoyancy over the medium term from goods and services tax (GST) are unequivocally recognised, near- term uncertainties with regard to revenue mobilisation there from - which could impact fiscal consolidation at both centre and state levels - cannot be ruled out as this fundamental reform gains pan-India traction. On the banking sector the report said, as of end-March 2017, 12.1% of the advances of the banking system were stressed. A sharp increase in provisioning for NPAs adversely impacted profitability of banks, with the public sector banks as a whole continuing to incur net losses during 2016-17.

The RBI also said that farm loan waivers by state governments have potential to crowd out corporate borrowing if financed through state debt issuance. As per initial estimates, the total loan waivers announced during 2017-18 (up to August 2, 2017) amount around 0.4% of the GDP. It added that depending on possible cutback under other expenditure heads, this may result in an increase in the consolidated GFD-GDP ratio of states by about 20-40 basis points.


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