Mid-year review makes a case for reassessment of fiscal and monetary policy

NEW DELHI: The mid-year review of the economy presented by the government today says the GDP will grow 7-7.5% in the current financial year while raising fiscal and growth concerns going ahead.

The review has raised questions over demand going ahead citing declining nominal GDP growth, making a case for reassessment of the fiscal and monetary policy.

The Economic Survey presented in February this year had estimated growth in 8.1-8.5% range.

The nominal GDP growth rate is pegged at 8.2% in the current fiscal, barely ahead of the real GDP growth and more than the real interest rates.

The review raises the possibility of a relaxation in the fiscal deficit targets and piles on greater pressure on the Reserve Bank of India to cut rates should inflation remain manageable.

The government has a fiscal deficit target of 3.9% of GDP in the current fiscal and 3.5% in FY17. There will be also pressure on the finances because of the Seventh Pay Commission recommendations and One-Rank-One-Pension for defence personnel.

The mid-year review does not suggest relaxing fiscal targets but raises red flag over demand and the role monetary and fiscal policy in dealing with the situation.

Decline in nominal GDP growth will impact revenue collection going ahead, chief economic advisor Arvind Subramanian said making while calling for an assessment of the fiscal and monetary policy.

The review calls for special emphasis on agriculture given the stress in the sector because of two successive poor monsoons. It does not expect a consumption boost similar to the current year in the year ahead because of declining crude prices.