India's government sees need for more monetary easing amid rising downside risks to growth and weak inflation.
"Optimism stems from the launch of the historic Goods and Services Tax (GST), the decision in principle to privatize Air India; actions to address the Twin Balance Sheet (TBS) challenge; and growing confidence that macro-economic stability has become entrenched," the Ministry of Finance said in its Economic Survey 2016-17 on Friday.
The Survey cautioned that anxiety reigns because a series of deflationary impulses are weighing on an economy, yet to gather its full momentum and still away from its potential.
The government expects inflation to remain below the Reserve Bank of India's medium term target of 4 percent.
The real policy rate of RBI was tighter than anticipated, the government noted. Assuming that the current broad stance of monetary and fiscal policies is maintained, the forecast for GDP reflects the greater risks to the downside, the survey showed.
Moreover, deleveraging of corporate balance sheets will be necessary to restore investment and credit demand, the government added.
In February, the survey had forecast a range for real GDP growth of 6.75 percent to 7.5 percent for FY 2018. "The preceding discussion indicates that the balance of risks seem to have shifted to the downside," the ministry said.
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