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Indian Economy: An Interim Update Chief Economic Adviser May 26 th , 2015

Indian Economy: An Interim Update Chief Economic Adviser May 26 th , 2015. Good News: Improving Inflation and Inflation Prospects. Improving Quality and Quantity of Fiscal Consolidation at General Government Level. Based on analysing 17 State Governments’ Budgets.

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Indian Economy: An Interim Update Chief Economic Adviser May 26 th , 2015

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  1. Indian Economy: An Interim UpdateChief Economic AdviserMay 26th, 2015

  2. Good News: Improving Inflation and Inflation Prospects

  3. Improving Quality and Quantity of Fiscal Consolidation at General Government Level Based on analysing 17 State Governments’ Budgets.

  4. Current Account Balance as a per cent of GDP

  5. Assessing Growth in Short Run Y = C+ Ipvt+ Ipub + FD’+ (X-M) Where, Y= Output C= Consumption Ipvt= Private Investment Ipub= Public Investment FD’= Fiscal Deficit net of Ipub X-M= Net Exports

  6. Merchandise Trade: Yet to Recover

  7. Services Exports: Still Weak

  8. Projects Under Implementation : Stalling Rate Declines in 2014-15

  9. Real Bank Credit Growth Started picking up in Q4:2014-15 Nominal Real

  10. Corporate Financing picked up in FY2014-15

  11. Assessing Growth in Short Run • Y = C+ Ipvt+ Ipub + FD’+ (X-M) • X-M weak because of slowing world growth and appreciating real effective exchange rate • Ipvt weak—Balance sheet stresses in corporates and banks • Fiscal (FD’): small consolidation • Therefore economy reliant on C and Ipub

  12. Trend in IIP better than indicated by the Series

  13. Uptick in Indirect Tax Collection in April 2015: Most Recent Indicator of Economic Activity Assuming buoyancy of between 0.9 and 0.8, nominal GDP growth is between 10.9 % and 12.3%. Real GDP growth, assuming GDP deflator of 3 percent, is between 7.7% and 9%

  14. Conclusion-1 • Substantial Structural Reforms

  15. Conclusion-2 • Post war history suggest structural reforms take time to influence growth • Policy support is crucial over short run, especially consumption, public investment, and private investment

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