It 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.
It pointed out that measures taken by the government have resulted in FDI equity inflow of 43.4 billion United States dollars in 2016-17, which is not only an increase of 8 per cent over the previous year, but also the highest ever.
The Survey said that the capital flows and exchange rate in turn will be influenced by the outlook and policy in advanced economies, especially the U.S., the recent nominal exchange rate appreciation, the monsoon, the introduction of the GST, the 7th Pay Commission awards, likely farm loan waivers and the output gap. The risk appetite of domestic as well as worldwide investors took a hit, stock market's key indices - Sensex and Nifty - fell over 1 per cent to hit their one-month lows on Friday.
"Farm loan waivers by states could amount to anything between Rs 1.25 lakh crore to Rs 2.75 lakh crore", he said.
The Federation of Indian Chambers of Commerce and Industry (FICCI) urged for the need to enable a further cut down of policy rates by the Reserve Bank of India (RBI), to spur demand and help ease the pressure on corporate balance sheets. Farm loan waivers could cut economic demand up to 0.7% of GDP and likely to give deflationary shock to the economy. However, passenger earnings grew at registered an increase of 4.5% during 2016-17 leading revenue of Rs 46,280 from the sector. "Cyclical conditions suggest that the policy rate should actually be below".
"The survey is a comprehensive and forthright document which lucidly and cogently articulates the current challenges and offers credible solutions for restoring the economy on its potential growth path", CII Director General Chandrajit Banerjee said in a statement. "The neutral rate. The conclusion is inescapable that the scope for monetary easing is considerable", the Survey said. Also, he said, restrictions on stock limits and exports that impede realisation of better prices should be eliminated.
Time is also ripe to consider whether direct support (as opposed to indirect support) can be more effective, he added.
The Survey took note that all indicators - GDP, IIP, credit offtake, investment and capacity utilisation - point to a deceleration in real activity since first quarter of 2016-17 and a further deceleration since the third quarter.
The Economic Survey said, "Various factors such as launch of the GST; Positive impacts of demonetisation; decision in principle to privatise Air India; further rationalisation of energy subsidies and Actions to address the Twin Balance Sheet (TBS) challenge contribute to this optimism".
There are early signs of tax base expanding post the implementation of GST, it said. "The survey rightly pin pointed moderation in growth in industrial output as also services, the key drivers of the economy. More dramatic have been developments during 2016-17- inflation declined sharply from 6.1 percent in July 2016 to 1.5 per cent in June 2017", it said.