RBI annual report 2017-18 Highlights: Infrastructure and Jobs - two keys to realise India's high growth dream

RBI annual report 2017-18 Highlights: The Reserve Bank of India's annual report 2017-18 forecasts good days ahead for the Indian economy. It outlines the successes of several initiatives of the Union government led by Prime Minister Narendra Modi on many fronts and highlights the prospects that lie ahead. "Indian economy is set to step up its growth trajectory," says the report, while pointing out two priority aspects to realise the high growth goal - Infrastructure and Employment. 

First, the report says, "infrastructure holds the key to unleashing the impulses of faster growth. In particular, the reasonable success achieved in the transportation space is worthy of emulation in other areas." 

Second, "even as infrastructure development provides the thrust, sustaining the momentum of growth will hinge around its inclusiveness and, in particular, its employment intensity," says the report. 

Here are some other highlights of the report released by the RBI today:

- Demonetisation impact: 

According to the RBI annual report, more than 99 per cent of the Rs 500 and Rs 1000 currency notes that rendered illegal in November 2016 were returned.

Post noteban, a surge in the number of Income Tax payers has been reported. The RBI report says, "The surge in the number of tax assessees, especially new ones, augurs well for raising the tax-GDP ratio to at least the levels of peers."

- Indian economy in 2017-18 turned in a resilient performance that was also entrenched in macroeconomic stability.  

- For 2018-19, "incoming data configure favourable conditions for an acceleration of activity in the Indian economy...Overall, agricultural production is likely to remain strong for the third consecutive year. Meanwhile, growth impulses in industry are strengthening, propelled by a sustained pick-up in manufacturing and mining activity"

- "Corporates are reporting robust sales growth and improvement in profitability as pricing power returns. Services sector activity is also set to gather pace, as high frequency indicators suggest. Revenue-earning freight traffic of railways has picked up, driven by stepped-up movement in coal, fertiliser and cement." 

- "The uptrend in construction is expected to continue going forward, given the government’s push for infrastructure – affordable housing, roads, and ports – and the robust expansion in the production of cement."  

- Credit growth:  The up-tick in credit growth is likely to be supported by the progress being made under the aegis of the Insolvency and Bankruptcy Code, 2016 (IBC) in addressing stress on balance sheets of both corporates and banks, recapitalisation of PSBs, and a positive outlook on the economy. 

- Inflation: "Headline inflation which averaged 4.8 per cent during Q1:2018-19, is likely to face upside risks over the rest of the year from a number of sources, warranting continuous vigil and a readiness to head off those pressures from getting generalised."

Centre-State and GST: "The cushion provided by compensation cess by the centre for any interim shortfall in GST revenue could help smooth state finances on the revenue front. Against this backdrop, the combined gross fiscal deficit of the centre and states is budgeted to be brought down to 5.9 per cent of GDP in 2018-19 from 6.6 per cent in the revised estimates for 2017-18."

- What reinforces prospects for 2018-19: "The combination of (i) a steady easing of inflation for the fifth year in succession to undershoot the target in 2017-18, (ii) a modest current account  deficit of 1.9 per cent of GDP, and (iii) public finances having sturdily weathered the implementation of a major structural reform – the Goods and Services Tax (GST), reinforces the prospects for 2018-19."

- Risks ahead: "On the downside, the firming profile of international commodity prices – especially of crude oil, spillovers from tightening global financial conditions, geo-political tensions, trade wars stirring up across borders, financial turbulence, and the overhang of impairment in domestic banking and corporate balance sheets, emerge as the key downside risks."

- Amidst negative global developments,  there are country-specific factors that could distinguish the Indian experience going forward. Such as: 

 - In the real sector, a normal monsoon for the third consecutive year should lift agricultural output. 

 - Manufacturing activity is gathering momentum on the back of new business, both domestic and export orders, rising capacity utilisation and drawdown of inventories. 

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 - In the services sector, the impulses of growth are broadening and expansion in employment conditions is generating anticipations of improvement in demand conditions. 

- Early indicators suggest that consumption demand remains robust. Aggregate domestic demand is also being supported by steadily strengthening investment – with a renewal of the capex cycle underway; and a strong pick-up in exports in Q1. 

- India remains a preferred destination for foreign direct investment (FDI).

Stage set for more structural reforms: "The stage is set for the intensification of structural reforms that will unlock new growth energies and place the Indian economy on a sustainable trajectory of higher growth"