Economic Survey Volume 2 Chapter 1 (Latest)







The chapter gives an overview of India’s economic performance in 2017-18 by analyzing the factors responsible for movement in GDP growth rate, its sectoral composition, movements in savings and investment rate etc. It also gives the growth prospects for FY 2018-19 and highlights the sectoral initiatives undertaken.



  • With an average GDP growth of 7.5% between 2014-15 and 2016-17, India can be rated as among the best performing economies in the world.
  • It is expected to decline to 6.5% in 2017-18 bringing the four year average to 7.3% (around 4% higher than global growth average of last 3 years and 3% more than the average growth achieved by emerging market and developing economies (EMDE).this is on account of lower growth in ‘Agriculture and allied’ and ‘Industry’ sectors.
  • In the recent years, the wedge between the real and nominal GDP growth has narrowed significantly.

Real GDP is equal to the economic output adjusted for the effects of inflation. Nominal GDP is economic output without the inflation adjustment. Nominal GDP is usually higher than real GDP because inflation is typically a positive number.


Period Real GDP growth Nominal GDP growth Difference Reasons
 2012-13 to 2014-15 6.4% 12.5% 6.1 Inflation in the earlier period is significantly higher.
2015-16 to 2017-18 7.2% 10.1% 2.9


Year Nominal GDP growth Reasons Nominal GVA growth
 2016-17 11% Lower real growth and lower value of deflator in 2017-18 9.7%
2017-18 9.5% 9.0%





  • Agriculture sector: significant higher growth in 2016-17 than the previous two years on the back of normal monsoon.
  • Public administration, Defence & other services sector: registered double-digit growth in 2016-17 due to higher payouts in salaries and arrears on account of implementation of the recommendations of the Seventh Pay Commission.
  • Industry sector: growth declined by over 3% in the last financial year on account of lower growth in this sector.
  • Services sector (excluding public admin, defence, etc.): From nearly 57% to 41% due to lower growth in ‘Financial, real estate & professional services sector’.




Year Real per capita income (Rs.) Rate of growth Nominal per capita income (Rs.) Rate of growth
2015-16 77,803 5.5% 94,130 9.0%
2017-18 86,660 1,11,782




  • Consumption expenditure has been the major driver, accounting for nearly 60% of the total GDP growth between 2012-13 and 2015-16.This contribution increased to over 95 per cent in 2016-17, which is attributed to higher growth of both Private Final Consumption Expenditure (PFCE) and Government Final Consumption Expenditure (GFCE), particularly the latter.
  • Growth of GFCE was nearly 21 per cent in 2016-17, against an average growth of 3.5 per cent during 2012-13 to 2015-16 – due to payment of higher wages and salaries to the government staff following the recommendations of Seventh Pay Commission.
  • Share of investments– continuously declined between 2011-12 and 2016-17.Fixed investment is expected to grow at a faster rate in 2017-18 than in 2016-17.
  • Net Exports– expected to decline from (-) 0.7% in 2016-17 to (-) 1.8% in 2017-18. As exports are expected to grow at 4.5% in 2017-18 while imports are expected to grow at a faster rate.




  • The investment rate (Gross Capital Formation (GCF) as a share of GDP) in the economy declined by nearly 5.6% between 2011-12 and 2015-16 due to factors – difficulties in acquiring land, delayed and cumbersome environmental clearances, problems on infrastructural front, etc .
  • Savings rate (Gross saving as a share of GDP) also declined by 2.5%between 2011-12 and 2013-14 and has remained rangebound thereafter.
  • The faster decline in investment rate vis-à-vis the savings rate has led to lower level of current account deficit (Savings Investment gap) from 2013-14 to 2015-16


Savings originate from households, private corporate sector and public sector.

A. Household sector:

  • The savings of household sector as a ratio of GDP have declined from 23.6 per cent in 2011-12 to 19.2 per cent in 2015-16.
  • It accounts for the bulk of the savings. However, the share of household savings in total savings declined from around 68% in 2011-12 to 59% in 2015-16.
  • Within the households’ savings, there has been a substitution away from physical to financial assets.
  • During 2016-17, saving in the form of currency notes has declined due to demonetization while it has increased in the form of shares, mutual funds etc.

B. Public savings: declined from 1.5% of GDP in 2011-12 to 0.9% in 2014-15, however, increased again in 2015-16. This could be partly explained by higher collection of union excise duties, particularly from petroleum products and reduced level of petroleum subsidy bill of the central government.


 C. Private corporate sector: Its share in the total savings increased from 9.5 per cent of GDP in 2011-12 to about 12 per cent of GDP in 2015-16.





There has been a consistent reduction in investment rate from close to 39% in 2011-12 to 33.3% in 2015-16. Gross fixed capital formation (GFCF) accounts for major proportion of Investment.


  • Fixed Investment rate (measured by GFCF) declined due to twin-balance sheet problem.
  • Assets-wise fixed investment: Fixed investment accounts for around 90 per cent of total investment. Fixed investment is in various assets including dwellings, machinery & equipment and intellectual property products (IPP), along with small contribution coming from cultivated biological resources (CBR).
  • Household’s investment in dwellings has declined considerably, which is possibly linked to reduction in the share of household’s savings in the form of physical assets.



Based on the data on Central Government finances (available till Nov 2017) from the Controller General of Accounts: there are three distinct trends:


  1. Direct tax collections are on track (growth of 13.7%)
  2. Non tax revenues have underperformed
  3. Non – debt capital receipts (mainly proceeds from disinvestment) are doing well

Growth in expenditure was as follows:

Expenditure Growth (during first 8 months) Reasons
Total 14.9%

– advancing of the budget cycle

– increased interest outgo

Revenue 13.1%
Capital 29.3%



Prices and Inflation

Inflation in the country continued to moderate during 2017-18.


Index  ( Apr- Dec) 2017-18 (in %) 2016-17 (in %)
Consumer Price Index – Combined (CPI-C) 3.3 4.8
Consumer Food Price Index (CFPI) 1.2 5.1
CPI based score ( non-food, non-fuel) 4.5 4.8



Index (Apr-Dec) 2017-18 (in %) 2016-17 (in %)
Wholesale Price Index (WPI) 2.9 0.7
WPI based food inflation 2.3 6.3
WPI fuel and power inflation 9.7 (-) 6.5
WPI based core (non –food manufactured products) 2.6 (-) 0.8


WPI inflation which remained subdued for several months, surged during February and March 2017 due to sudden spurt in global crude oils prices.


Monetary Management and Financial Intermediation

  • In the third bi-monthly Monetary Policy Statement (Aug 2017), Repo rate was reduced by 25 basis points to 6.0 %
  • The performance of the banking sector, and in particular the Public Sector Banks, continued to be subdued in the current financial year. The gross non-performing advances (GNPA) ratio of Scheduled Commercial Banks increased from 9.6 %to 10.2 % between March 2017 and September 2017.
  • In tandem with the re-monetisation process, from November 17, 2017, as a favorable base effect set in, the Year on Year (YoY) growth of both ‘Currency in circulation’ and ‘Reserve money’ (M0) turned sharply positive and higher than their respective growth rates in the previous year.



India’s external sector has continued to be resilient and strong in 2017-18 so far and the balance of payments (BoP) situation continued to be comfortable.


India’s merchandise trade

  • Positive growth in 2016-17 in merchandise exports after two years of negative growth.
  • Imports declined mainly due to a reduction in value of imports of crude oil (owing to sharp fall in the prices of crude oil in international market) and petroleum products and reduction of gold and silver imports.
  • A larger reduction in value of imports vis-à-vis that of exports helped in improvement in the merchandise trade balance, from US$ 190 billion in 2012-13 to US$ 108.5 billion in 2016-17.
  • India’s export volume growth which moved to positive territory since March 2016 showed an upward trend till April 2017, but started decelerating afterwards. In 2017-18 (April-December), imports grew by 21.8 per cent. In 2017-18 (April-December) trade deficit shot up to US$ 114.9 billion.


Balance of Payments

  • India’s balance of payments situation which has been benign since 2013-14, continued to be so in the H1 of 2017-18, despite some rise in CAD in Q1.
  • The CAD increased from US$ 3.8 billion (0.4 per cent of GDP) in H1 of 2016 -17 to US$ 22.2 billion (1.8 per cent of GDP) in H1 of 2017-18 due to sharp rise in imports of gold and increase in oil prices in the international markets.



  • In H1 of 2017-18, there has been an increase in net invisibles surplus to US$ 52.5 billion from US$ 45.7 billion in H1 of 2016-17, with increase observed in net services and net private transfers.
Net services receipts (on YoY basis during H1 of 2017-18) Reasons Net private transfers (on YoY basis during H1 of 2017-18) Reasons
14.6 % Rise in net earnings from travel & communications, computer services

Capital /Financial account of BoP in H1 of 2017-18

Notwithstanding a decline in FDI inflows in H1 of 2017-18, net foreign investment recorded a growth of 17.4 % owing to a sharp rise in portfolio investment to India. It reflects positive outlook about growth potential of Indian economy.


Foreign Exchange Reserves


Status of reserves as on Dec 29, 2017 – US$ 409.4 billion (growth of 14.1 %)


Increase in nominal terms – US$30.3 billion during H1 of 2017


Import cover – 11.1 months at end-Sep 2017


Import cover: is a traditional trade-based indicator of reserve adequacy. It is defined in terms of the number of months of import equivalent to reserves. 

Real effective exchange rate (REER): is the weighted average of a country’ currency relative to an index or basket of other major currencies, adjusted for the effects of inflation. The weights are determined by comparing the relative trade balance of country’s currency against each country within the index.

Nominal effective exchange rate (NEER): is an unadjusted weighted average rate at which one country’s currency exchanges for a basket of multiple foreign currencies. It is an indicator of a country’s international competitiveness in terms of the foreign exchange (forex) market.


Exchange Rate

  • The rupee strengthened by 2.5 % to a level of Rs. 64.24 per US dollar during December 2017 from the level of Rs. 65.88 per US dollar during March 2017 on the back of significant capital flows.
  • During 2017-18 (April-December), on an average, the rupee has also appreciated against other major currencies besides the US dollar.
  • The appreciation of the rupee (in real effective exchange rate (REER) terms) indicates that India’s exports may have become slightly less competitive.

The following box shows the stability of value of Indian rupee vis-à-vis US$ in the last few years.



External Debt

Categories Sep end 2017 Mar end 2017 Reasons
External debt US$ 495.7 billion US$ 471.6 billion Increase in FPI included in commercial borrowings
Short term debt Increased by 5.4% Increase in trade related credits
Share of Government debt 21.6% 19.4% Increase in FPI in Government securities


Foreign exchange reserves cover to total external debt improved to 80.7% at end-September 2017 as compared to 78.4% at end-March 2017.


Trade policy 

  • Two important developments in the trade policy during the year are the mid-term review of Foreign Trade Policy (FTP) and the recent multilateral negotiations of WTO in December 2017.
  • MEIS (Merchandise Exports from India Scheme) incentives for two sub-sectors of textiles and SEIS (Service Exports from India Scheme) for notified services have been increased by 2%.
  • A special package for employment generation in leather and footwear sector was approved by the Government which is likely to help exports from these sectors.



CSO has estimated the GDP growth in 2017-18 to be 6.5 %, the growth during 2018-19 could be higher, depending on a number of factors.

Positives Negatives

·       As per IMF’s World Economic Outlook released in October 2017, the global growth is expected to accelerate to 3.7% in 2018 from 3.6% in 2017 which could boost India’s exports.

·       Remittances can be expected to pick up if oil prices maintain their rising trend.

·       The policy rates can be expected to remain fairly stable if the inflation rate does not deviate much from its current level.

·       Favorable interest rate regime prevailing in the global markets could provide greater certainty to the investment climate.



·       Higher crude oil prices (expected to increase by 10-15%)

·       Protectionist tendencies in some countries could impact exports growth

·       Tightening of monetary conditions in developed countries could lead to lower capital flows


On balance, there is a strong possibility of growth in 2018-19 to be higher than what it is expected to be in 2017- 18. Growth of GDP in 2018-19 could be in the range of 7.0 to 7.5 per cent.



Agriculture and Allied sectors

  • The share of agriculture and allied sectors in GVA declined from 18.2 %in 2012-13 to 16.4 %in 2017-18.
  • India achieved a record production of food grains estimated at 275.7 million tons during 2016-17.
  • India ranks first, with 9.6 % (179.8 Mha) of the global net cropland area according to United States Geological Survey, 2017. It shows India has tremendous potential for crop diversification and make farming a sustainable and profitable economic activity.
  • Towards achieving a more diversified cropping pattern, the government is implementing the Crops Diversification Programme in original green revolution states viz. Punjab, Haryana and in Western UP, to diversify paddy area towards less water requiring crops.
  • The All India percentage of net irrigated area to total cropped area was 34.5 per cent in 2014-15, which makes a large part of agriculture in India dependent on rainfall.
  • Pradhan Mantri Krishi Sinchayee Yojana (PMKSY) is being implemented in mission mode to increase the coverage of irrigated area.
  • To raise awareness about crop insurance among agricultural households, Pradhan Mantri Fasal Bima Yojana (PMFBY) which is a yield index based crop insurance scheme was launched in 2016.


Industrial, Corporate and Infrastructure performance

  • As per the Index of Industrial Production (IIP) the industrial output increased by 3.2 % during April-November 2017-18 vis-à-vis the corresponding period of previous year.
  • The eight Core infrastructure supportive industries, coal, crude oil, natural gas, petroleum refinery products, fertilizers, steel, cement and electricity that have a total weight of nearly 40 % in the IIP attained a cumulative growth of 3.9 % during April-November 2017- 18 over the corresponding period of previous year.
  • Due to various measures such as GST, Insolvency and Bankruptcy Code, etc. and reforms to boost industrial growth such as Make in India and Start-up India, etc.
  • India has leapt 30 ranks over its previous rank of 130 in the World Bank’s latest Doing Business Report 2018.
  • Moody’s Investors Service has also raised India’s rating from the lowest investment grade of Baa3 to Baa2.


Sectoral Initiatives 

(a) Steel

  • The Government raised customs duty and imposed anti-dumping duty to address dumping of cheap steel imports from China, South Korea and Ukraine.
  • Minimum Import Price (MIP) was introduced on a number of items in Feb 2016, with a sunset clause of one year to help domestic producers.
  • The Government also rolled out a New Steel Policy in May 2017.

(b) Micro, Small and Medium Enterprises (MSME) sector

  • The Government has initiated the Pradhan Mantri Mudra Yojana for development and refinancing activities relating to micro industrial units.

 (c) Textiles and Apparels

  • Cabinet announced a Rs. 6000 crore package for the apparel sector on June 2016.
  • In December 2017, the approved the scheme for Capacity Building in Textile Sector with an outlay of 1,300 crore for the period from 2017-2018 to 2019-2020

(c) Leather sector

  • To promote employment in the leather & footwear sector, a scheme was announced in December 2017 with an outlay of Rs 2600 crore over three financial years from 2017-18 to 2019-2020.

(d) Gems and jewellery

  • Growth of exports from this sector have risen from 0.7 % in 2014-15 to 12.8 % in 2016-17.
  • It requires training in jewellery designing, setting up hallmarking centres, etc. and creation of multiple jewellery parks.


Infrastructure performance

Performance of some of the key infrastructure sectors is as follows:


  • Roads
  • As of September 2017, the length of roadways comprises 115,530 km of NHs along with 176,166 km of state highways and 5,326,166 km of other roads.
  • The new umbrella program ‘Bharatmala Pariyojana’ aims to achieve optimal resource allocation for a holistic highway development.
  • Railways
  • The pace of commissioning Broad Gauge (BG) lines and completion of electrification have been accelerated.
  • 425 km of metro rail systems are operational and about 684 km are under construction in various cities across India as in December 2017.
  • Ports
  • Under the Sagarmala Programme which aims to promote port-led development along Indian coast line, 289 projects worth Rs. 2.17 lakh crore are under various stages of implementation and development.
  • Telecom
  • The programmes including ‘Bharat Net’ and ‘Digital India’ aim at converting India into a digital economy.
  • At the end of September 2017, the number of subscribers stood at 1207 million, out of which 502 million connections were in the rural areas and 705 million in the urban areas.
  • Civil Aviation
  • In April–September 2017, domestic airlines carried 57.5 million passengers, showing a growth rate of 16 % over the corresponding period of previous year.
  • Government is taking initiatives like liberalization of air services, airport development and regional connectivity through UDAN scheme.
  • Power
  • The Ujjawal DISCOM Assurance Yojana (UDAY) has focused on enhancing the financial health of DISCOMs by reducing interest burden, cost of power and aggregated technical and commercial losses.
  • A new scheme, Saubhagya (Pradhan Mantri Sahaj Bijli Har Ghar Yojana), was launched in September 2017 to ensure electrification of all remaining willing households in the country in rural and urban areas.



  • With a share of 55.2 % in India’s GVA, the services sector continued to be the key driver of India’s economic growth, and is expected to contribute almost 72.5 % of GVA growth in 2017-18.
  • In 2016-17, FDI equity inflows to the services sector declined by 0.9 per cent to US$ 26.4 billion, though overall FDI equity inflows grew by 8.7 per cent.
  • However, during 2017-18 (April-October), the FDI equity inflows to these sectors grew by 15.0 per cent, as compared to 0.8 % growth in total FDI equity inflows, mainly due to higher FDI in two sectors i.e. telecommunications and computer software and hardware.
  • India remained the eighth largest exporter of commercial services in the world in 2016 (WTO, 2017) with a share of 3.4 per cent, which is double the share of India’s merchandise exports in the world.
  • The professional scientific & technical activities, which include R&D services, grew by 17.5 per cent and 41.1 per cent in 2014-15 and 2015-16 respectively. However, India’s gross expenditure on R&D has been low at just around 1 per cent of GDP.
  • The tourism sector has been performing robustly with Foreign Tourist Arrivals (FTAs) growing to 8.8 million in 2016.
  • As per NASSCOM data, India’s Information Technology –Business Process Management (ITBPM) industry grew by 8.1 per cent in 2016-17 to US$ 139.9 billion (excluding e-commerce and hardware).
  • In the case of Satellite Launching, as on March 2017, PSLV had successfully launched 254 satellites.
  • The Government has taken many initiatives in the different services sector, which include digitization, e-visas, infrastructure status to Logistics, Start-up India, schemes for the housing sector, etc., which could give a further fillip to the services sector.


Social Infrastructure

Expenditure on social infrastructure

The all India expenditure on social services has increased from 5.8 per cent in 2015-16 to 6.6 per cent in 2017-18.

Status on education

As per the Right to Education (RTE) indicators, most of the States have registered an increase in the percentage of schools complying with the PTR (Pupil Teacher Ratio) norms.

  • The GPI (Gender Parity Index which reflects disparity of girls vis-a-vis boys in access to education) has improved substantially at the primary and secondary levels of enrolment.
  • However, in higher education, gender disparities still prevail in enrolment.

Status on Health

  • The report ‘India: Health of the Nation’s States’, 2017 has for the first time provided comprehensive set of findings on the distribution of diseases and risk factors across all States of the country from 1990 to 2016.
  • Of the total disease burden, 33% was due to infectious and associated diseases and 55% (from 30% in 1990) was due to non-communicable diseases.
  • Malnutrition still remains the most important risk factor that results in disease burden in the country.

Swachh Bharat Mission- Gramin

  • To accelerate efforts to achieve universal sanitation coverage, Swachh Bharat Misson was launched.
  • As per baseline survey conducted by Ministry of Drinking Water & Sanitation, 55 crore persons were defecating in open in October 2014, which declined to 25 crore in January 2018.

Labour reforms

The Government is in the process of rationalization of the 38 Labour Acts by framing relevant provisions of existing laws into 4 labour codes – Code on Wages, Code on Industrial Relations, Code on Social Security & Welfare, and Code on Safety & Working conditions.



Sustainable Development Goals

The UN Sustainable Development Goals (SDGs) adopted by the international community in September 2015 comprehensively cover social, economic and environmental dimensions and build on the Millennium Development Goals (MDGs). There are 17 SDGs which have 169 targets to be achieved by 2030.

India presented its first Voluntary National Review (VNR) on the implementation of SDGs on 19th July, 2017 at the High Level Political Forum on Sustainable Development (HLPF) at United Nations, New York, covering 7 SDGs.

Urban India and Sustainable Development


SDG  11 Problem Way Forward

States “make cities inclusive, safe, resilient and sustainable”.


India is now embarking on a fast rural to urban transition.


–        Raising resources of such big magnitude

–        Average cost recovery is less than 50% in most of the Urban Local Bodies (ULB)

Encourage the ULBs to raise resources through

various innovative financial instruments such as municipal bonds, PPPs, credit risk guarantees, etc.


Access to Sustainable Energy

  • Government of India had launched “Pradhan Mantri Ujjwala Yojana” (PMUY) in May, 2016 and upgraded it to provide 80 million LPG connections by 2020 to BPL households.
  • Other initiatives namely “Ujjawala Plus” will address the cooking needs of deprived people who are not covered under the Socio-Economic Caste Census (SECC) 2011.
  • ISA which was launched in Nov 2015 in Paris entered into force in Dec, 2017.

ISA (International Solar Alliance) is a coalition of solar rich countries lying fully or partially between the Tropics of Cancer and Capricorn and aims to specifically address energy needs by harnessing solar energy.

Currently, 46 countries have signed and out of these, 19 countries have ratified the ISA Framework Agreement.

ISA is also the first International inter-governmental treaty-based organization headquartered in India.


India and Climate Change

Government of India is implementing the National Action Plan on Climate Change (NAPCC), which includes eight national missions covering solar, energy efficiency, agriculture, water, sustainable habitat, forestry, Himalayan eco system and knowledge, apart from various other initiatives.

Current Multilateral Negotiations on Climate Change

Key take aways for India from UNFCCC (COP 23)

  • The agenda of pre-2020 climate change commitments and implementation has found a significant place in COP 23 outcome in the form of a decision with steps for future action on pre-2020 action and ambition.
  • It emphasizes that enhanced pre-2020 actions can lay a solid foundation for enhanced post-2020 ambitions.