Economic Survey

India Economic Survey 2017-18

GST Implementation and New India

GDP Growth (Actual)

6.8%

Forecast: 6.75-7.5%

Inflation (CPI)

3.6%

Consumer Price Index

Wholesale Inflation (WPI)

2.9%

Wholesale Price Index

Fiscal Deficit

3.5% GDP

Union Budget (Actuals)

Key Theme

GST Implementation and New India

Key Highlights

GDP growth at 6.8%, within the Survey forecast range, as GST transition and demonetisation aftereffects moderated growth
GST launched on July 1, 2017, as India's biggest indirect tax reform — subsuming 17 taxes and 23 cesses
CPI inflation fell to a record low of 3.6%, undershooting the RBI's 4% target for the first time
WPI inflation at 2.9% with benign commodity prices globally
India jumped 30 places in the World Bank Ease of Doing Business ranking to 100th position
Recapitalisation of public sector banks announced at Rs 2.11 lakh crore through Recap bonds
Resolution of 12 large NPA accounts referred to IBC by RBI, totalling Rs 3.45 lakh crore
GST revenues stabilised at Rs 90,000+ crore per month by year-end after initial teething troubles
Aadhaar-based Direct Benefit Transfer saved Rs 90,000 crore through leakage reduction since inception
E-way bill system launched under GST to streamline interstate movement of goods
Exports recovered to positive growth at 10% in dollar terms after two years of contraction
Private investment remained weak with gross fixed capital formation at 28.5% of GDP

Policy Recommendations

1 Simplify the GST rate structure by reducing the number of slabs from four to ideally two or three
2 Address the unfinished agenda of banking sector reform — resolve the remaining large NPA accounts through IBC
3 Revive private investment through improved ease of doing business and contract enforcement
4 Create a dedicated body for employment data collection and labour market analysis
5 Scale up agricultural exports by addressing sanitary and phytosanitary barriers
6 Implement the National Health Protection Scheme for universal coverage of secondary and tertiary care
7 Address gender imbalances in the economy — India's female labour force participation at 24% is among the lowest globally
8 Reform higher education through greater autonomy, accountability, and research funding
9 Invest in climate-resilient infrastructure and disaster management capacity
10 Liberalise services trade further and push for multilateral trade liberalisation at WTO
11 Address the emerging challenge of water scarcity through demand management and pricing reform

Survey Predictions vs Budget Outcomes

Comparison between Economic Survey predictions and actual Union Budget allocations

Metric	Survey Prediction	Actual Budget	Deviation
GDP Growth (%)	6.75-7.5	6.8 (actual)	At lower end of range
Fiscal Deficit (% of GDP)	3.2	3.5	+0.3% (GST revenue shortfall)
CPI Inflation (%)	4.0-4.5	3.6	Below target
GST Revenue (Rs Cr/month avg)	95,000	89,885	-Rs 5,115 Cr/month
Ease of Doing Business Rank	Top 100	100th	Target achieved

Union Budget 2017-18 Summary

Corresponding budget data to read alongside the Economic Survey Actuals

Total Receipts

21.42 lakh crore

Total Expenditure

21.42 lakh crore

Fiscal Deficit

5.91 lakh crore

Revenue Deficit

4.44 lakh crore

View Union Budget 2017-18 in detail

Detailed Analysis

The Economic Survey 2017-18, presented on January 29, 2018, documented a year of historic transition. The GST rollout on July 1, 2017, represented the culmination of a reform journey spanning two decades and multiple governments. The Survey, Arvind Subramanian's last as Chief Economic Adviser (though he would stay on until mid-2018), brought characteristic analytical depth to assessing this landmark reform while grappling with the paradox of a slowing economy amid transformative structural change. GDP growth of 6.8% represented a moderation from the 8.3% recorded the previous year. Multiple factors contributed: the GST transition disrupted supply chains as businesses destocked ahead of the July launch and then slowly adapted to the new compliance requirements; the lingering effects of demonetisation continued to weigh on cash-intensive informal sectors; and global oil prices began their upward journey, reversing the beneficial terms-of-trade that India had enjoyed for three years. The Survey argued that this growth moderation was a "temporary price" of institutional transformation rather than a sign of structural weakness. The GST chapter was naturally the centrepiece of the Survey. It chronicled the implementation challenges with remarkable candour. The GSTN technology platform experienced significant glitches in its initial months, with return filing proving cumbersome for small businesses. The multiplicity of rates — 0%, 5%, 12%, 18%, and 28%, plus cesses — created compliance complexity. Several items were moved between rate slabs in the initial months, adding to confusion. Tax collections fell short of targets, with monthly GST revenue averaging Rs 89,885 crore against the Rs 95,000 crore needed to compensate states for revenue shortfalls. Despite these teething troubles, the Survey marshalled data to argue that GST was already delivering structural benefits. The number of indirect tax registrants had increased by 50%, with 3.4 million new registrations — a massive expansion of the tax base. Interstate trade, measured through e-way bill data, showed significant formalisation, with goods now moving freely across state borders without the tax inspectors and octroi checkposts that had added an estimated 5-7 days to delivery times. The Survey estimated that GST would add 0.4-0.7 percentage points to GDP growth in the medium term through reduced logistics costs and trade creation. The Survey introduced several innovative analytical concepts. Its chapter on "Climate, Climate Change, and Agriculture" used district-level data spanning 50 years to estimate that a 1-degree Celsius increase in temperature reduced agricultural yields by 6.2% and that unmitigated climate change could reduce farmer incomes by 15-18% by 2100. This was among the first attempts by an official Indian government document to quantify the economic costs of climate change using granular domestic data. Another groundbreaking chapter focused on gender disparities, documenting what the Survey called the "son meta-preference" — the tendency of Indian families to continue having children until a son is born. Using national health survey data, the Survey showed that this preference resulted in millions of "unwanted" girls, contributing to skewed sex ratios, lower investment in girl children's education, and ultimately a female labour force participation rate of just 24% — among the lowest in the world and declining. The Survey called for a fundamental shift in social norms alongside policy measures to boost women's economic participation. On the banking front, the year saw decisive policy action on the NPA crisis. The RBI, using powers granted under an ordinance amending the Banking Regulation Act, directed banks to refer 12 of the largest defaulting accounts — with total exposure of Rs 3.45 lakh crore — to the Insolvency and Bankruptcy Code for resolution. This marked a shift from the "extend and pretend" approach that had characterised Indian banking for years. The government also announced a comprehensive recapitalisation plan for public sector banks totalling Rs 2.11 lakh crore, including Rs 1.35 lakh crore through recapitalisation bonds. The Ease of Doing Business story was a significant positive. India jumped 30 positions in the World Bank rankings to 100th place, the largest improvement by any country that year. Reforms in areas like starting a business, getting construction permits, and resolving insolvency contributed to this jump. The Survey cautioned, however, that the World Bank rankings measured only de jure reforms at the Delhi and Mumbai level, and that the actual business environment for small and medium enterprises in smaller cities remained challenging. CPI inflation at 3.6% was the lowest in the inflation-targeting era, undershooting the RBI's 4% target. This was driven by a combination of benign food prices (good monsoons and high stocks), moderate crude oil prices for most of the year, and the competitive deflationary effects of GST. The Survey raised the interesting question of whether India's structural inflation rate had permanently shifted downward due to reforms in food supply chains, better monetary policy, and increased market competition — a debate that remains relevant. Exports showed a welcome recovery, growing at 10% in dollar terms after two consecutive years of contraction. The composition was shifting, with petroleum products, drugs, and electronics gaining share while traditional items like gems and textiles faced competition from Bangladesh and Vietnam. The Survey noted that India's services exports — crossing $180 billion — were an underappreciated strength, and called for further liberalisation of professional services markets globally. Private investment remained the economy's Achilles heel. Gross fixed capital formation at 28.5% of GDP was well below the 34-35% levels achieved during the 2004-08 boom. The corporate deleveraging cycle was still underway, capacity utilisation in manufacturing remained below 75%, and policy uncertainty around land acquisition and environmental clearances deterred new greenfield projects. The Survey argued that the government's capital expenditure push — while necessary — could not substitute for a broad-based private investment recovery, which required addressing regulatory uncertainty, strengthening contract enforcement, and resolving the banking sector's capacity to lend. The housing sector received detailed treatment. Real estate, India's second-largest employer after agriculture, had been profoundly disrupted by the triple impact of demonetisation, RERA, and GST. Unsold housing inventory in the top eight cities exceeded 700,000 units, and developers faced a severe liquidity squeeze. The Survey argued that while the short-term pain was acute, these reforms would ultimately benefit homebuyers through greater transparency, timely delivery, and genuine price discovery. The Pradhan Mantri Awas Yojana had sanctioned over 40 lakh houses in its first three years, with the Survey describing affordable housing as a potential growth engine. The water crisis chapter was a timely addition. With NITI Aayog warning that India was facing its worst water crisis in history, with 600 million people facing acute water shortage, the Survey called for a fundamental rethinking of water governance. It recommended metering and pricing reform, investment in recycling and reuse infrastructure, and a shift from flood irrigation to micro-irrigation. The interlinking of rivers proposal was discussed, though the Survey noted its enormous environmental and displacement implications required careful assessment. The Survey concluded with a "New India" vision for 2022 (the 75th anniversary of independence), projecting growth of 7-7.5% for FY19. It argued that the economy had absorbed two major structural shocks — demonetisation and GST — and was positioned for a cleaner, more formalised, and faster growth trajectory. The combination of GST unifying the goods market, IBC imposing financial discipline, RERA cleaning up real estate, and digitalisation reducing information asymmetries was creating what the Survey termed a "new normal" of improved economic governance. While acknowledging the unfinished reform agenda — agricultural modernisation, labour market flexibility, educational quality — the Survey expressed confidence that the institutional foundations being laid would support sustained inclusive growth.

Source: Official Economic Survey Document

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Economic Reforms and Demonetisation

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Investment-led Growth

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