Indian Economy: An

Interim Update
Chief Economic Adviser
May 26th, 2015

Good News: Improving Inflation and

Inflation Prospects

Improving Quality and Quantity of Fiscal

Consolidation at General Government Level
Fiscal Indicators of General Government (% of GDP)
2014-15 RE

2015-16 BE

Fiscal Deficit

6.9

6.5

Revenue Deficit

2.9

2.4

Capital Expenditure

4.6

5.1

RE= Revised Estimates;

BE= Budget Estimates;

Based on analysing 17 State Governments Budgets.

Current Account Balance as a per cent of

GDP

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

Merchandise Trade: Yet to Recover

Services Exports: Still Weak

Projects Under Implementation : Stalling Rate

Declines in 2014-15

Real Bank Credit Growth Started picking up

in Q4:2014-15
Nominal

Real

Corporate Financing picked up in

FY2014-15

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 weakBalance sheet stresses in corporates and
banks
Fiscal (FD): small consolidation
Therefore economy reliant on C and Ipub

Trend in IIP better than indicated by the Series

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%

Conclusion-1
Substantial Structural Reforms
Governance
Decisive reduction in
corruption reflected in;
i.Clean and transparent
auction of coal and
spectrum
ii.Liberalization of gold
import regime, reducing
the rents intrinsic to
quantitative restrictions

Institutional
Macroeconomic policy
i. Unleashing cooperative
i. Commitment to
i.
and competitive
fiscal discipline
federalism by adopting
FFC recommendation and ii. Increasing public
investment to
creating Niti Aayog
revive growth
ii.
ii. Close to securing political
iii. Facilitating
agreement to launch
declining inflation
game-changing GST
via agricultural
iii. Pursuing the JAM agenda
policies
in cooking gas
iv. Pursuing financial
inclusion by creating Jan
Dhan accounts
v.

Initiating comprehensive
social security via
pension, life insurance
and accident schemes

Sectoral
Liberalizing FDI
in insurance,
defence, and
railways
Deregulating
diesel, petroleum,
and cooking gas
sectors and
adhering to the
commitment to
deregulation

iii. Easing the cost of

doing business

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