New Delhi: Chief Economic Advisor Arvind Subramanian on Tuesday said a revival in consumption and an expected rebound in exports will boost growth in 2017-18; however, the possibility of escalating tensions in world trade, resurgence of protectionism and higher oil prices remained challenges.

“One important source of demand next financial year could be a revival in exports with possible spill overs in investments. Already, we are seeing some signs of revival in services and non-oil exports," said Subramanian while making a presentation on the Economic Survey 2016-17 presented in Parliament earlier on Tuesday.

During April-December, non-petroleum, oil and lubricants exports grew 2.2% to $176.8 billion from a year ago. Overall exports somewhat reversed the trend of negative growth during the period with a growth of 0.7% to $198.8 billion.

Subramanian also said that rising bad loans, a legacy of the mistakes made by businesses during the economic boom years, was another challenge that warranted write-offs as well as setting-up of a state-owned asset reconstruction company (ARC) that can take over distressed assets. ARCs take over bad loans at a discount from banks and help borrowers turn around the business and improve their repayment ability. The new bankruptcy regime is expected to ease the process of redeploying capital that is locked up as bad loans.

Subramanian said that discontinuation of large currency bills from 9 November posed significant hardships to the informal sector but also offered scope for long-term benefits. “It is likely to improve financial savings in the economy. Corruption and black money is expected to come down. Real estate prices have already shown signs of easing, which was one of the objectives," he said.

Real estate could be brought into the proposed Goods and Service Tax (GST), as a natural follow-up of implementing the indirect tax reform as this sector has been a source of unaccounted wealth, the Chief Economic Advisor said. He also said that embracing of digital modes of payment has to be gradual, inclusive and only through incentives considering the existing inadequate infrastructure for compulsory adoption.

According to Mukesh Butani, Managing Partner, BMR Legal, while the slowdown in economic activity has constrained GDP growth, it seems the government is committed to achieving the fiscal deficit target of 3.5% for 2016-17. “Silence on fiscal deficit target of 3% percent for financial year 2017-18 perhaps indicates government’s desire to loosen the purse strings for spurring growth and demand."

The Survey tabled in Parliament by finance minister Arun Jaitley highlighted the proposed GST rollout, bankruptcy reforms, liberalisation of foreign direct investment norms and measures taken to promote labour intensive sectors such as apparels as the major initiatives towards improving investment climate.

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