Union Budget 2015-16 Economic Survey: Cheap oil will lift growth, but challenge is to create jobs

Economic Survey_3

In the short run, growth will receive a boost from lower oil prices, from likely monetary policy easing facilitated by lower inflation and lower inflationary expectations, and forecasts of a normal monsoon, the Economic Survey 2014-15 said. The Survey estimates GDP growth at market prices for FY16 at 8.1-8.5 percent, 0.6-1.1 percentage points higher vis-a-vis 2014-15.

Four factors that could drive this growth according to the Survey:

*The government has undertaken a number of reforms and is planning several more

* A further impetus to growth will be provided by declining oil prices and increasing monetary easing facilitated by ongoing moderation in inflation.Simulating the effects of tax cuts, declining oil prices will add spending power to households, thereby boosting consumption and growth.

* Further declines in inflation and the resulting monetary easing will provide policy support for growth both by encouraging household spending in interest-sensitive sectors and reducing the debt burden of firms, strengthening their balance sheets.

* The final favourable impulse will be the monsoon which is forecast to be normal compared to last year

Still the challenge will to create enough jobs in the economy so that the fruits of this growth are shared by everybody. “There has probably been a decline in long run employment growth in the 2000s relative to the 1990s and probably also a decline in the employment elasticity of growth: that is, a given amount of growth leads to fewer jobs created than in the past,” the Survey said. “Given the fact that labour force growth (roughly 2.2-2.3 percent) exceeds employment growth (roughly about 1.5 percent), the challenge of creating opportunities will remain significant,” the Survey said.

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