New Delhi, Aug 11 - India's GDP growth projection of 6.75-7.5% for the current fiscal faces downside risks from deflationary impulses generated by various factors, according to the government's Economic Survey-II unveiled on August 11.
"Economy is yet to gather its full momentum and still away from its potential," said the Finance Ministry's Economic Survey 2016-17-II tabled in Parliament.
The Survey, authored by Chief Economic Advisor (CEA) Arvind Subramanian highlighted decline in farm revenues and non-cereal food prices, farm loan waivers, fiscal consolidation and declining profitability in the power and telecommunication sectors as the factors generating deflationary tendencies.
"These include: stressed farm revenues, as non-cereal food prices have declined, farm loan waivers and the fiscal tightening they will entail and declining profitability in the power and telecommunication sectors, further exacerbating the twin-balance sheet (TBS) problem," the survey said.
The November demonetisation took a toll on the Indian economy with the Gross Domestic Product (GDP) during the fourth quarter, ending March this year, falling sharply to 6.1% from 7% in the previous quarter while growth for entire 2016-17 also declined correspondingly.
Currency in circulation declined significantly following the demonetisation of high-value notes. The Survey said that, as on the end of the last fiscal on March 31, currency in circulation contracted by 19.7% whereas reserve money contracted by 12.9%.
It also noted that credit off-take from banks continued to decelerate further. During 2016-17, gross bank credit outstanding grew at around 7% on an average. The average gross bank credit to industry contracted by 0.2% during the last financial year.
The Survey expressed concern about sluggish growth and increasing indebtedness in some sectors of the economy, which has impacted the asset quality of banks.
The gross non-performing advances (GNPAs), or bad loans, ratio of bank rose from 9.2% in September 2016 to 9.5% in March 2017, it said.
The survey also said retail inflation was expected to remain below the Reserve Bank of India's (RBI) medium-term target of 4% up to the end of March 2018. Retail inflation in June fell to its lowest level in more than five years to 1.54%.
It, therefore, saw "considerable" scope for further easing by the RBI of its key lending rate.
Subdued inflation and demand prompted the RBI earlier this month to reduce its key lending rate by 25 basis points to 6%. This was the first rate cut after the 25 basis points cut made in October last year.