It highlighted decline in farm revenues and non-cereal food prices, farm loan waivers, fiscal consolidation and declining profitability in the power and telecommunication sectors as the factors generating deflationary tendencies.
The survey also said that it is uncertain how the government's own finances will play out during the current financial year.
Across-the-board deceleration in economic activity has made it hard to get to the 7.5 per cent GDP growth as projected earlier for the current fiscal, Economic Survey said today as it called for more interest rate cuts and use of all policy tools to revive momentum. The risk appetite of domestic as well as global investors took a hit, stock market's key indices - Sensex and Nifty - fell over 1 per cent to hit their one-month lows on Friday.
On stressed assets, the Survey said that the ratio of stressed companies in the power sector (defined as the share of debt owed by companies with an interest coverage (IC) ratio of less than 1) has been steadily rising this year, reaching 70%, with an associated vulnerable debt of over Rs. 3.6 lakh crore.
The Federation of Indian Chambers of Commerce and Industry (FICCI) urged for the need to enable a further cut down of policy rates by the Reserve Bank of India (RBI), to spur demand and help ease the pressure on corporate balance sheets.
The CEA also warned against farm loan waivers explaining that if all states start offering them, its impact on the economy would be deflationary rather than inflationary.
"Cyclical conditions suggest that the policy rate should actually be below. the neutral rate". "Current inflation, at 1.5 per cent, is running well below the 4 per cent target, with the domestic economy lacking the dynamism to push this back toward the target", it said.
"Economy is yet to gather its full momentum and still away from its potential", it said. "The neutral rate. The conclusion is inescapable that the scope for monetary easing is considerable", the Survey said. "This farm stress has happened at the time of plenty", he added.
It also noted that credit off-take from banks continued to decelerate further. "The only demand boost came from consumption, which accounted for about 96 per cent of GDP growth in FY 2017", it said.
Less developed states such as Bihar, Chhattisgarh, Jharkhand, Rajasthan, West Bengal and Odisha witnessed around 30 per cent rise in mandays worked between November 2016 and March 2017.
The survey, however, noticed a rekindled optimism on structural reforms in Indian economy riding on various factors such as launch of the GST; Positive impacts of demonetization; decision in principle to privatize Air India; further rationalization of energy subsidies and Actions to address the Twin Balance Sheet (TBS) challenge. The Survey wanted stock limits and movement curbs on farm goods to end and credit off-take from banks to pick up. "The removal of checkposts and easing of transport constraints after GST implementation can provide some short-term fillip to economic activity", it added.