Economy showing mixed signals, outlook challenging: FinMin

Cautioning that the Indian economy is sending mixed signals, Chief Economic Advisor Arvind Subramanian today said the future outlook is challenging as private investments remain weak and government expenditure is set to increase.
However, stressing that the macro-economic situation is "robust and stable" and GDP growth forecast of 7-7.5 per cent is still the highest in the world, he said, "India is both a heaven of stability and outpost of opportunity".
"The economy is recovering but it's hard to be very definitive about the strength and breadth of the recovery for two reasons -- economy is sending mixed signal and second there is some uncertainty how to interpret GDP data," he said.

About the signals, he said that while personal consumer loans are growing rapidly at 15 per cent, loans to industry are growing slowly. Also, while collection of indirect taxes is very high, direct taxes were not very buoyant.
Sectorally too, while coal, steel, aluminium are not showing much growth, electricity generation and car sales are rising.
Subramanian was talking to reporters after the mid-year economic analysis, authored by him, was tabled in Parliament. It also mentions that the data uncertainty is sometimes puzzling.

"A lot is going on in the economy and different things are happening in different sectors, which makes interpreting it somewhat difficult," he said, adding that overall tax revenues are buoyant, inflation is under control and external situation robust.

Subramanian said the "country can say with some amount of confidence that economy is well cushioned to absorb any volatility that might come about because of recent US Federal Reserve's action (of hiking rates) yesterday or going forward. In that sense macro economy is well cushioned".
He said challenges remain on reviving private investment going forward as the economy cannot sustain consumption and public investment for long.
"Outlook, going forward is little bit challenging... Private sector investment remains challenge because of legacy issues. Investment recovery will remain weak. Corporate sector is indebted and agriculture is not contributing as much," he said.

While making a case for setting a more realistic disinvestment target for next year, Subramanian asserted that there would not be any expenditure cuts in the fourth quarter of this fiscal.
Subramanian said the implementation of 7th Pay Commission
recommendations and one rank one pension, besides decline in nominal GDP and not so strong private investment, will put pressure on the government's fiscal position.
He said inflation has moderated significantly and it is now about 5 per cent. Underlying determinant like rural wages and MSP increases are also moderating and forex reserves have risen to about USD 352 billion which is above standard.

"Rupee has been very stable. The focus on Rupee dollar rate conveys misleading impression about stability of rupee. If you measure it against basket of currencies it has actually been quite stable," he said, adding that exports will rise next year and current account deficit will be in the range of 1-1.2 per cent.
Talking about doubts being raised on the GDP data, Subramanian said: "Institutions that calculate GDP are fiercely independent and any insinuations that these estimates are somehow motivated, are simply preposterous."
India has shifted to a new method of calculating Gross Domestic Product (GDP) and the revision has upped growth significantly. Experts maintain however that it does not match the developments at the ground level and the private sector still remains stressed.

"These estimates are prone to measurement uncertainty and not just in India but across the globe, especially at this stage because relative prices are moving very differently. Commodity prices are coming down very sharply internationally, whereas in other sectors prices have not come down.
"When these price changes take place, measurement does become more difficult... Yes there is uncertainty in GDP measurement, but this measurement uncertainty does not appear to be systematically biased one way or other," he said.
Subramanian said one have be to cautious about interpreting real GDP data, "but this should not be overdone and for the moment we have to interpret the data as they come".

He also pitched for continuing with economic reforms to boost supply and capacity of the economy. GST, bankruptcy code and measures to boost agriculture output would be the key.
Subramanian said that going forward the fiscal and monetary policy has to be framed accordingly to take into account the decline in nominal GDP growth. There was a need to boost demand going forward, he said.
"The decline in nominal GDP growth has created a new challenge in managing the economy, he said, as he projected nominal GDP growth of 8.25 per cent for current fiscal.