RBI sees economy clipping at 7.3% in current fiscal

The Reserve Bank today said the ongoing accelerated reform initiatives like GST and continuing political stability will push the economic growth scale to 7.3 per cent in terms of GVA in the current fiscal year.

The Financial Stability Report 2017, released today, bases its optimism to the lower fiscal deficit at 3.2 per cent for this year down from 3.5 per cent in 2016-17, increasing public capex and support to poorer households, small businesses and the rural sector, to oil the economy.

"Going forward, reforms in FDI and real estate sector, implementation of GST, and revival in external demand are likely to contribute to a better growth outlook. GVA growth is expected to be higher at 7.3 per cent in 2017-18," the FSR said.

On inflation, it paints a rosy picture and projects CPI inflation to be in the range of 2-3.5 per cent in the first half of the year and 3.5-4.5 per cent in the second half.

Retail inflation, excluding food and fuel that remained sticky during H2 of FY17 at around 4.9 per cent, dipped to 4.3 per cent in April and 4.2 per cent in May 2017, largely reflecting the impact of decline in global crude oil prices on transport and communication and moderate price pressures in services.

While noting that the fiscal conditions of the Centre is on the mend, it expressed concerns on that of the states.

"While Centre's commitment to returning to rule based fiscal discipline is commendable, there are a few issues that need attention. One is the deterioration in the states' fiscal conditions and the other is increased leverage of public sector undertakings.

"In the case of states, there is an increasing tendency to borrow outside the budget through parastatals as these are non-transparent in the sense that they do not add to outstanding debt even though their servicing burden falls on the budget," the report warned.

At the same time, in absolute and relative terms the size of net market borrowings of the states has been rising sharply, though their market liquidity has not improved commensurately, it maintained.

"This has implications for the further development of secondary market in government bonds, besides periodic redemption pressures," the FSR added.