Cost of Modi’s GST, demonetisation: Here’s what Indian economy lost that rest of the world did not

By: |
Published: May 8, 2018 5:00:14 PM

Even as the economy recovers from the structural shocks of GST and demonetisation, India missed out on a ‘synchronized global recovery in 2017,’ according to a latest report.

?India missed out on the synchronized global recovery and growth in 2017 was a percentage point below its long-term average,” IIF said , taking note of GST and demonetisation.

Even as the economy recovers from the structural shocks of GST and demonetisation, India missed out on a ‘synchronized global recovery in 2017,’ according to a latest report by IIF (Institute of International Finance). Taking stock of the impact on the economy due to these disruptions, IIF said, “As a result of these shocks, India missed out on the synchronized global recovery and growth in 2017 was a percentage point below its long-term average.”

The global economy was indeed robust in the previous calendar year, as a recent report by IMF said that global output is estimated to have grown by 3.7 percent in 2017, which is 0.1 percentage point faster than projected in the fall and ½ percentage point higher than in 2016.

Taking stock of the impact of note-ban reform, IIF said, “Demonetization in late 2016 affected 85% of cash in circulation and activity took a deep hit as distribution of new banknotes was slow. The effects on money aggregates were long lasting.” According to the Institute, currency in circulation and broad money are still 2 and 6 percentage points of GDP below pre demonetization levels. Further, on GST, the report said that while the reform is positive for medium-term growth it has also caused a short-term disruption.

IIF explains that GDP growth was already weakening before demonetization, but the note ban reform depressed consumption and investment further. “A temporary increase in public consumption softened the blow in the first half of 2017 but GST implementation hit just as the economy was recovering from demonetization,” the report said.

Currently, consumption growth is yet to return to pre-demonetization levels but investment ‘bounced back’ despite uncertainty surrounding the rate structure and exemptions of the new GST. Taking stock of exports, IIF noted that weak net exports due to persistent real exchange rate appreciation also weighed on growth significantly.

Going forward, the Indian economy is turning the corner, as it ‘leaves behind’ these two shocks and implements policies such as public-bank recapitalization, IIF pointed out. “Waning exchange rate appreciation pressures and improving credit growth will support a rebound in exports and investment,” it added.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition