India's GDP likely to be 6.8% in 2016-17, RBI to maintain status quo on Feb 8: Ficci survey

India's economy is projected to be 6.8% for the year 2016-17 and the RBI is likely to maintain status quo in the upcoming monetary policy meet and to cut rates in the first half of fiscal year 2017-18, Ficci said citing economists in a press release on Monday.

Federation of Indian Chambers of Commerce and Industry (Ficci) recently conducted an Economic Outlook survey between December 2016 and January 2017, which involved economists representing industry, banking and financial services sector as its participants. 

"The latest round of Ficci’s Economic Outlook Survey puts forth an annual median gross domestic product (GDP) growth forecast of 6.8% for 2016-17. This is 0.5 percentage points lower than the estimate of 7.3% put across in the last round," cited Ficci in a release. 

The Central Statistical Organisation (CSO) had projected the country's GDP growth of 7.1% for 2016-17 earlier this year, it said. 

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The recent survey  of Ficci has projected the agriculture sector to witness an uptick in the fiscal year 2016-17 on the back of good monsoon leading to support in agricultural production. 

However, it expects the growth in industry and services to remain moderate. Industry and services sector are expected to grow by 5.7% and 8.5%, respectively in 2016-17, Ficci said.

The economists in the survey have forecast the government's latest demonetisation decision to cause a slowdown in the industrial and services sector growth.

In a surprise move to curb black money, corruption and terrorism, prime minister Narendra Modi announced demonetisation of old currency notes of Rs 500 and Rs 1,000 leading to massive cash crunch across the country. 

When asked about the timeframe for the return of normalcy into the economic system post demonetisation, the opinions of economists were divided. However, some believed that things will start rolling back to the way they were in the pre-demonetisation days by the end of the current quarter (March 2017), others felt that it could take at least two more quarters for things to fully settle (June 2017).

The Ficci survey has projected the country's GDP growth to recover once the remonetisation phase is complete and currency is back into circulation. 

According to the participants, the recovery in the country's investments and overall economic growth will be impacted by the government spending and private consumption which has been hit due to its demonetisation move.

They believe that the government will continue the focus on additional spending especially in infrastructure projects to give a push to the economy.

On the government's digitisation move, they felt that the transition from cash to digital payments will be harder in the rural areas.

" It was suggested that instead of promoting plastic currency, the Aadhaar enabled payment system would facilitate a smooth transition in the rural areas and should be the focus for government efforts," Ficci said citing economists, as saying in a statement. 

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On the country's inflation, the surveyed economists have projected the consumer price index-based (CPI) inflation to remain benign.  

"CPI inflation has a median forecast of 4.7% for 2016-17, with aa minimum and maximum range of 3.8% and 5.1% respectively," Ficci said in a release citing economists. 

On the RBI's interest rate cut in the upcoming monetary policy on February 8, a majority of participants expected the central bank to maintain status quo with regard to repo rate on account of domestic and global factors. Global happenings like US president Donald Trump announcement of policies will be critical, they said. 

However, economists have anticipated the accommodative stance of the RBI to continue with a probable rate cut of 25 basis points in first half of the financial year 2017-18. 

On expectations from the government on Budget 2017, economists agreed  that it should revamp the income tax framework for both individual and corporates which will give support to consumer spending which has hit hard due to demonetisation. 

Majority economists expected the government to announce incentives in the budget for promoting digital transactions. Besides, they hope the government in the budget would address the impact of demonetisation on the informal sector which is largely cash dependent. 

 "It is important to ensure that there are enough incentives for the informal setups to move into the formal system," Ficci said citing economists as saying. 

They expect the government to continue with its focus on infrastructure, MSME, real estate and housing sector in Budget 2017.  

On GST front, majority economists believed that the government will laid down guidelines for the implementation of the goods and services tax (GST). 

In Budget 2017, they expect the government to further boost its efforts to increase employment through its flagship programmes such as ‘Make in India’ and ‘Skill India’ and to to unveil incentives to promote exports.

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