Economic Activist Blaming GST and Demonetisation as a Weak Investment

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Due to demonetisation the government estimates that peoples were led to the opening of more than 20 million bank accounts, with more than 9 million new taxpayers being registered as a result.

The Reserve Bank estimated that over 99 per cent of the Rs 500 and Rs 1,000 notes that were demonetised by the government in November 2016 as per the annual report, which have either been deposited or exchanged for new currency.

As going through the underscoring and the disruptions caused by uncertainty related to the GST rollout amid slowdown in manufacturing activities, it has been found that India’s economic growth has slowed down in three-year low of 5.7 per cent in April-June quarter.

Investment demand has been subdued for a fairly long time and the slowdown in investment demand started from the second quarter of 2016-17 (well before demonetisation or GST) as per the report note.

Economic activity lost momentum in the June India’s with its quarter and critics, and blamed GST for it, as well as demonetisation for the slip, but the experts say that it’s a weak investment demand that is a bigger challenge.

As per the report, by adding the weak investment demand is a far bigger structural challenge for the economy.” With the cyclical factors of demonetisation and GST, We believe that the market participants may be ignoring the structural challenges to India’s GDP growth by overly focusing on it,” Kotak Institutional Equities, make a weak investment demand which accounts for 30% of GDP is a far bigger ‘structural’ challenge.

Capital Economics at the mean time while acessing report said that the weakness of second quarter GDP data can not be attributed solely to demonetisation as growth had already slowed sharply (the last quarter before demonetisation):

  • In the first quarter to 6.1%
  • From 7.5 per cent in third quarter of 2016

Demonetisation has been an abject failure given its lack of success in rooting out illicit wealth while also causing growth to slow sharply, as per the face of it, it is likely to have in the long run just to have some positive effects from it, like boosting digital transactions and widening the tax base.

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