DeMo brings down GDP number

Since the launch of the union government’s demonetization drive on November 8th last year, observers have been warning of moderation of GDP growth in the near run. And the economic survey tabled by the finance ministry in parliament on Tuesday has confirmed this apprehension. The survey maintains that the adverse impact of demonetisation on GDP growth will be transitional. It states that that once the cash supply is replenished, which is likely to be achieved by end March 2017, the economy would revert to the normal.  Therefore the real GDP growth in 2017-18 is projected to be in the range of 6.75 to 7.5 percent.

new currencyThe survey further suggests a few measures to maximize long-term benefits and minimize short-term costs. One, fast remonetisation and especially, free convertibility of cash to deposits including through early elimination of withdrawal limits. This would reduce the GDP growth deceleration and cash hoarding. Two, continued impetus to digitalization while ensuring that this transition is gradual, inclusive, based on incentives rather than controls and appropriately balancing the costs and benefits of cash versus digitalization. Three, following up demonetisation by bringing land and real estate into the GST. Four, reducing tax rates and stamp duties. And finally, an improved tax system could promote greater income declaration and dispel fears of over-zealous tax administration.

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