Terming demonetisation and GST as wasted efforts is not fair. The Government during the announcement of these seminal reforms never claimed there would be immediate benefits
The state of the economy is much in discussion these days. The discussion over the economy started when the GDP figures pointed to a slowdown in the first quarter of the current financial year with growth pegged at 5.7 per cent, the lowest in three years. But matters came to a head when former Finance Minister and senior BJP leader Yashwant Sinha wrote a column in the Indian Express newspaper on September 27 raising serious concerns over the state of the country’s economy.
In his column, Yashwant Sinha gave various arguments for the decline in the current GDP figures; especially, demonetisation and GST (Goods and Service Tax) was on his radar. Although, he is not alone in this perception as many others too believe the same about the current economy. Yashwant Sinha and many other economists are partially true in their analysis but if we study their analysis closely, all are premised on short-term results.
The whole ongoing debate is only focused on the results of current GDP figures, that too only of first quarter. We must note that other quarters are still remaining for the current financial year and the results might change. Proper analysis can only take place when we have the annual figures of the GDP but undoubtedly demonetisation and GST have had some impact on our current economic situation. But terming demonetisation and GST as entirely wasted ideas is not fair. The Government during the announcement of these two economic reforms never claimed that benefits would be evident in the short term. In fact, these steps were taken to bring positive changes in the long run and the Government was well aware about the slight downswing in the economy which may result in the short term.
Some critics of the demonetisation term it as “wasted idea” on the basis of the report of RBI which revealed that 97 per cent cash in circulation came back to the banking system. So where is the black moneyIJ But the issue deserves to be understood better.
The fact is that the 97 per cent cash which came back in the banking system are all not white. Around 9 lacks account are under the scanner of I-T department under the suspicision of having illegal money on them and already these accounts are facing investigation and the process will take certain amount of time to complete. Even if the 80 per cent of these accounts are found to have illegal harvested money, then will it not be seen as a success of this moveIJ
Similarly in case of GST, if the critics believe that GST is just another blunder after the first blunder, then they need to go through the comparison about the earlier tax system and the new tax system, the simplification in taxation system can be easily seen which will eliminate hurdles in doing business and help new business to set up in India.
So putting us in a judgmental mode at the earliest stage of these two reforms will not permit to carry judgmental process in a sensible manner. The point should be noted that in India only 3 per cent people used to pay income taxes as a result Government was bound to increase tax rates but due to demonetisation impact, the Government was able to add new 9.1 million taxpayers which will indirectly boost the Indian economy.
Yes, undoubtedly internal glitches in demonetisation and GST may have impact the economy currently, because almost all the cash dependent sectors have suffered due to cash crunch but once enough cash circulation will be there in the market, the domestic investors they will again start investing in the share market, although we are already receiving foreign investments but it is not enough to boost economy.
The reason why I will say that GST also impacted economy’s pace is because when there was news about introduction of GST, many industries might have had stopped their manufacturing unit in a fear that GST implementation might bring loss if they produce new items but now when all the complexities about GST is clear, they have again started manufacturing item which will definitely make GDP figures stronger in next remaining two quarters. What economy is suffering now can be seen as a short term pain for a long term gain and the figures by global economic forums and world bank still project India’s GDP growth for FY-17 unchanged which is an indication for recovery of economy.
Yashwant Sinha in his article also bashed the policies designed by Finance Minister Arun Jaitley on the figures of current GDP growth but if GDP is the only criteria for economical development, then also, Arun Jaitley is the best of all previous Finance Ministers as number indicates so. He took the GDP from 6.1 in 2013 to 7.5 in 2014 and and 8.0 in 2015 and 7.1 in 2016. In fact, under the regime of Yashwant Sinha as the Finance Minister (1999-2004), Indian economy reached lowest in 20 years with 4.1 per cent growth rate for three consecutive years and was as one of the reasons of Atal Bihari Vajpayee loosing 2004 elections even after having a satisfactory term as Prime Minister of India.
In any event, if you think that demonetisation and GST did not have much positive impact on economy and in curbing black money, all you need to wait for the results of the GDP figures for next quarters and maybe for next financial year. The analysis presented by Yashwant Sinha is only partially correct as it lacks certain facts and figures comparison and he definitely missed out an important element of Indian economy, i.e, inflation.
Under the leadership of Arun Jaitley as Finance Minister since last three years, India saw a dip in inflation rate — from 10.6 per cent under UPA to 3.7 per cent in 2016 — even in summer period when normally inflation remains at peak. At the same time in June 2017, inflation was at lowest at 1.54 per cent for the first time. GDP figures may not impact every person on day to day basis but inflation does. Restricting the analysis on economy based on GST, demonetisation and GDP figures of first quarter will be like doing injustice to the economy.
See what NITI AAYOG vice-chairman, Rajiv Kumar, views are on the economy : “Demonetisation had no role in fall of GDP. Instead, active de-stocking in anticipation of GST (goods and services tax), higher base and a deflationary impact of WPI (wholesale price inflation) had led to a fall in economic growth,” Kumar said.
“I am confident that with a good monsoon, increase in FDI and FIIs, smooth rollout of GST and a large number of IPOs lined up, economic growth in the July-September quarter will be in the range of 7-7.5 per cent," Kumar added. Here, the views of NITI AAYOG vice-chairman can be considered as more neutral in comparison to the views of Yashwant Sinha who had a political background.
Demonetisation and GST, may have served as a strict measures to increase the future GDP growth rate at higher pace of Indian economy. As of now, no one should doubt the intention of the Government in fighting against black money. If you put a seed in a fertile land, it takes some to grow into a tree, it cannot grow into a tree within a single day. Whenever a major reformative measures are taken, the economy undergoes through a series of stages and currently our economy is in a transition stage undergoing various changes and once it reaches the final stage the positive impact can be seen but undoubtedly it will take its time.
(The writer is a freelance contributor)