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Growth likely to be in the lower range, closer to 6.5%

The Indian economy’s growth in 2017-18 is more likely to be closer to 6.5% than 7.5%, according to Chief Economic Adviser Arvind Subramanian. He was speaking to the media after the second volume of the Economic Survey was tabled in Parliament

The Chief Economic Adviser remarked that we are not changing our growth forecast (a range of 6.5%-7.5% estimated in February), but because of all these risks, it’s less likely that we will see outcomes towards the upper end of the forecast.

The balance of risks to the growth outlook has clearly shifted to the downside and the balance of probability has correspondingly shifted away from the upper end of the growth forecast

Impact of demonetization on growth forecast as per the second volume of the Economic Survey:

  • Demonetization has reduced 3.5 lakh crore of cash from the amounts available in the system before and digitization has increased across the board, even among the poor
  • While the informal sector suffered initially from demonetization, all indicators such as two-wheeler sales and demand for MGNREGA work returned to normal
  • It found that while the number of income tax returns had increased sharply, the average income declared had not risen commensurately
  • There seems to have been a sharp and equilibrium decline in the use of cash, the holding of cash is less than what might have been the case had pre-demonetization trends prevailed

Impact of demonetization on digitization as per the second volume of the Economic Survey:

  • The effect of demonetisation on the digitisation of transactions can be divided into three categories:
    • the poor (who are largely outside the digital economy)
    • the less affluent sections (who have acquired Jan dhan accounts and RuPay cards)
    • the affluent (who are fully digitally integrated via debit and credit cards)
  • It is clear that there has been a substantial increase in digitization across all categories. And even though the immediate post-demonetisation surge has moderated in some cases, the level and pace of digitization are still substantially greater than before demonetisation
  • The report found this to be true for Aadhaar enabled payments, which serve as an indicator for the poorer sections of society, Rupay cards for the intermediate category, and credit and debit card transactions for the affluent sections of society.
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