New Delhi [India], Jan. 31 : Against the backdrop of macro-economic stability, the year was marked by two major domestic policy developments-the passage of the Constitutional Amendment, paving the way for implementing the transformational Goods and Services Tax (GST), and the action to demonetize the two highest denomination notes, stated the Economic Survey 2016-17.
According to the survey, which was presented today in the parliament by Union Finance Minister Arun Jaitley, the GST will create a common Indian market, improve tax compliance and governance, and boost investment and growth.
The survey says that demonetisation has had short-term costs but holds the potential for long-term benefits.
Follow-up actions to minimise the costs and maximise the benefits include: fast, demand-driven, remonetisation; further tax reforms, including bringing land and real estate into the GST, reducing tax rates and stamp duties; and acting to allay anxieties about over-zealous tax administration.
These actions would allow growth to return to trend in 2017-18, possibly making it the fastest-growing major economy in the world, following a temporary dip in 2016-17.
The report states that the year was also marked by some tumultuous external developments. In the short-run, world GDP growth is expected to increase because of a fiscal stimulus in the United States but there are considerable risks.
These include higher oil prices, and eruption of trade tensions from sharp currency movements and from geo-political factors.
Another serious medium-term risk is an upsurge in protectionism that could affect India's exports. The major short term macro-economic challenge is to re-establish private investment and exports as the major drivers of growth and reduce reliance on government and private consumption.
Addressing the Twin Balance Sheet problem-over-indebted corporate and bad-loan-encumbered public sector banks-a legacy of the years surrounding the Global Financial Crisis will be vital.
Looking further ahead, societal shifts at the level of ideas and narratives will be needed to overcome three long-standing meta-challenges: inefficient redistribution, ambivalence about the private sector and property rights, and improving but still-challenged state capacity.
Doing so would lift an economy that is oozing with potential. The report says that India seems to be a demographic sweet spot with its working age population projected to grow by a third over the next three decades, providing it a potential growth boost from the demographic divided which is likely to peak within next five years.
The survey also states that the Swachh Bharat, which has the objective of ensuring safe and adequate sanitation, water security and hygiene, has been a part of serious policy issue which would promote a broader fundamental right to privacy for women in the country.