1. Note ban to lower growth in 2016-17: Assocham

Note ban to lower growth in 2016-17: Assocham

Banning of high value notes would lower growth rate due to economic slowdown in the third and fourth quarters of fiscal 2016-17, said industry apex body Assocham on Friday.

By: | New Delhi | Published: December 30, 2016 9:10 PM
money-l Admitting that it was not easy to predict precisely the impact of note withdrawal with far-reaching implications, it said the growth momentum would be restored by the normal monsoon raising agricultural growth and rural demand.

Banning of high value notes would lower growth rate due to economic slowdown in the third and fourth quarters of fiscal 2016-17, said industry apex body Assocham on Friday. “The RBI (Reserve Bank of India) has revised its GDP growth forecast for 2016-17 to 7.1 per cent from its earlier estimate of 7.6 per cent due to the negative impact of the note withdrawal on the economy,” said the Association Chambers of Commerce of India (Assocham) in a statement here.

Admitting that it was not easy to predict precisely the impact of note withdrawal with far-reaching implications, it said the growth momentum would be restored by the normal monsoon raising agricultural growth and rural demand.

“Consumption, which accounts for 60 per cent of the GDP, is expected to recover in the first quarter (April-June) of 2017-18 on spending from the disbursement of pay, pension and arrears following the implementation of the seventh Central Pay Commission’s award,” said Assocham.

Noting that demonetisation would adversely impact many sectors of the economy in the short run and hence government revenue through indirect taxes, it said the extent to which the shortfall would be offset would depend on direct tax collection, especially tax on undeclared income.

In the medium term, demonetisation is expected to boost tax revenues and translate into higher capital expenditure and faster fiscal consolidation.

“With 86 per cent of value of money in the form of Rs 500 and Rs 1,000 notes delegalised since November 8, the economy had to manage with 14 per cent of money for the first few days,” said Assocham.

Cash in circulation dropped to Rs 11.6 lakh crore on November 25 from Rs 17.7 lakh crore on November 4.

Observing that real estate and property prices would decline in the absence of huge cash for transactions, fuelled by unaccounted income, the apex body said the sector could bring much needed correction in the housing market.

“Similarly, prices of consumer goods may fall due to moderation in demand as use of cards and cheques will compensate for some purseses,” said the statement.

On the flip side, greater formalisation of economic and financial activity will help broaden the tax base and expand usage of the financial system.

“Corporates will see economic activity decline with lower sales volumes and cash flows. Companies doing retail sales will be most affected,” it added.

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    Anand Deshpande
    Dec 30, 2016 at 5:09 pm
    we are doing the same mistakes the west did. in short term killing informal economy to increase the size of formal economy might sound like a great thing but this is the very idea which is leading to civil war situation in many developed nations now , we shud learn from west 's mistakes and try for coexistence of both though tax reforms. today someone who cannot afford bed goods can atleast buy from informal sector at relatively cheap prices. this idea will give rise to monopoly of certain big bs utlimately leading to rise in cost of living for everyone while not creating equal opportunities for every section of society.
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