The Survey said that the capital flows and exchange rate in turn will be influenced by the outlook and policy in advanced economies, especially the USA, the recent nominal exchange rate appreciation, the monsoon, the introduction of the GST, the 7th Pay Commission awards, likely farm loan waivers and the output gap.
"Also, farm loan waivers could reduce aggregate demand by as much as 0.7% of GDP, imparting a significant deflationary shock to an economy", the Survey noted.
The subsequent launch of a national Goods and Services Tax (GST) has caused chaos on the ground as ambiguous rules have left firms confused on how to price their products.
It said, "The Survey notices a rekindled optimism on structural reforms in Indian economy".
It, therefore, saw "considerable" scope for further easing by the RBI of its key lending rate.
Citing deflationary impulses, the Survey stressed that farm revenues, decline in non-cereal food prices, farm loan waivers, fiscal tightening and declining profitability in the power and telecom sectors are weighing on the economy.
Business Standard said, "The tabling of the survey has been delayed as some sections in the top rung of the government had objected to Chief Economic Advisor Arvind Subramanian's strong criticism of the Reserve Bank of India's six-member Monetary Policy Committee's inflation modelling and monetary policy decisions". Nominal GDP growth accelerated post demonetisation.
Noting that during 2016-17, gross bank credit outstanding grew at around 7 per cent on an average, the Survey said, "The sluggish growth can be attributed to several factors, including incomplete transmission of the monetary policy as banks had not passed on the entire benefit of monetary easing to borrowers".
According to the Survey, CPI inflation declined to 4.5 per cent during 2016-17, with a broad-based price decline in all major commodity groups. This performance was higher than the range predicted in the Economic Survey (Volume I) in February.
It further pointed out that the twin balance sheet problem - at the end of banks and corporates - more attractive interest rates for borrowers in the bond market and from non- banking financial institutions are other reasons for slow bank credit growth.
"This growth suggested that the economy was relatively resilient to the large liquidity shock of demonetisation which reduced cash in circulation by 22.6 percent in the second half of 2016-17", it said.
On the government finances front, the Survey said that fiscal deficit is expected to decline to 3.2 per cent of GDP in 2017-18 compared with 3.5 per cent in 2016-17.