Indian Economy: Outlook and

Challenges
Arvind Subramanian
Chief Economic Adviser

Peterson Institute for International Economics

April 21, 2017

Chief Economic Adviser New Delhi Friday, April 21, 2017 Slide 1
 Overview
Macroeconomic outlook

Reforms

Challenges
Proximate
Structural

Chief Economic Adviser New Delhi Friday, April 21, 2017 Slide 2
 Falling headline inflation, below medium-term target of 4%

Chief Economic Adviser New Delhi Friday, April 21, 2017 Slide 3
 Easing underlying inflation pressures

Core inflation excludes food and fuel. True core also excludes transport services.
Chief Economic Adviser New Delhi Friday, April 21, 2017 Slide 4
 Inflation/external outlook: Benign
Appreciating nominal exchange rate

US policy: Less anxiety about capital outflow from emerging markets

than a few months ago

Monsoon likely to be normal

Chief Economic Adviser New Delhi Friday, April 21, 2017 Slide 5
 Easing imported inflation: Appreciating nominal exchange rate

Chief Economic Adviser New Delhi Friday, April 21, 2017 Slide 6
 Slowing underlying growth
Year on year, percentage change 11.0 Real GVA growth

10.0

Core GVA
9.0

8.0

7.0 GVA Headline

6.0

5.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4*
2014-15 2015-16 2016-17

Core GVA is obtained by subtracting agriculture and government services from aggregate GVA.
*Q4 value is based on CSOs projection.
Chief Economic Adviser New Delhi Friday, April 21, 2017 Slide 7
 Sharp decline in credit growth to industry

Chief Economic Adviser New Delhi Friday, April 21, 2017 Slide 8
 Bright Spot: Exports recovering as world economy
bounces back

Chief Economic Adviser New Delhi Friday, April 21, 2017 Slide 9
 84
86
88
90
92
94
96
98
100
102
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15

Chief Economic Adviser

May-15
Jun-15
Jul-15
INR/CNY

Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
Jan-16
Feb-16
INR/USD

Mar-16
Apr-16
May-16
Jun-16
Jul-16
Aug-16
Sep-16
Oct-16
Nov-16
Dec-16

New Delhi
Jan-17
Feb-17
Mar-17
103
107
111

95
99

Friday, April 21, 2017

Asia H Weight REER
Deteriorating competitiveness as rupee has strengthened

Slide 10
 Further Fiscal Consolidation in 2017-18 at central, state, and public
sector levels
Fiscal Deficit of General Government Borrowings of General Government
(Excluding CPSE and UDAY) (Including CPSE, Excluding UDAY)
7.0 8.0
State Center State Center CPSE
7.0 0.7
6.0 0.5 0.5 0.9 1.1
1.0
6.0
5.0
4.9 4.5 4.1 3.9 3.5 5.0
4.0 3.3
4.9 4.5 4.1 3.9 3.5
4.0 3.3
3.0
3.0
2.0
2.0
2.5 2.5 2.7 2.6
1.0 2.0 2.2 2.5 2.5 2.7 2.6
1.0 2.0 2.2
0.0 0.0
2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18
Data for 2015-16 to 2017-18 is for 16 States (accounting forRE
80- BE
CPSE Central Public Sector Enterprises.
RE BE
82% of GDP) for which budgets have been presented.
Chief Economic Adviser New Delhi Friday, April 21, 2017 Slide 11
 Declining Public Sector Investment
General Government Capital Expenditure
7.0 6.6
6.3
6.0
6.0

2.7 2.3
5.0 2.3
Per cent of GDP

4.0

3.0 2.1 2.2

1.9

2.0

1.0 1.9 1.9 1.8

0.0
2015-16 2016-17 RE 2017-18 BE
Center State CPSE
Chief Economic Adviser New Delhi Friday, April 21, 2017 Slide 12
 Monetary Policy: Increasing real policy (repo) rate

Real interest rate is obtained by subtracting inflation from the nominal repo rate.
True core excludes prices of food, fuel, and transport services.
Chief Economic Adviser New Delhi Friday, April 21, 2017 Slide 13
 Reforms
Transparency in auctioning public assets

Bankruptcy and codifying institutional arrangements with RBI

JAM architecture to improve delivery of government services

GST

Chief Economic Adviser New Delhi Friday, April 21, 2017 Slide 14
 Proximate challenges
Twin balance sheet
About 40% of corporate debt with firms whose interest coverage ratio (ICR) is
less than 1

Stressed assets as a share of loan portfolio could be as much as 20 percent

Fiscal: If Center is Penelope during the day are the states Penelope at
night?
Agricultural loan waivers

Chief Economic Adviser New Delhi Friday, April 21, 2017 Slide 15
 Meta-challenges (Economic Survey, Chapter 2)
Extensive and inefficient redistribution

Ambivalence about private sector

State capacity and delivery of health and education

Chief Economic Adviser New Delhi Friday, April 21, 2017 Slide 16