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  1. IMF, World Bank and ADB have this common observation on Modi’s GST and demonetisation

IMF, World Bank and ADB have this common observation on Modi’s GST and demonetisation

The latest reports of World Bank, IMF and Asian Development Bank have a common observation of structural reforms implemented by the Narendra Modi-led government. We take a closer look.

By: | Published: April 18, 2018 10:25 AM
IMF, World Bank, Asia Development Bank, ADB, demonetisation and GST, structural reforms Interestingly, while World Bank has pegged India to grow at 7.3% in the current fiscal, IMF has forecasted a GDP growth of 7.4% surpassing rival China to emerge to reclaim the spot of fastest growing major economy in the world.

Closing on the heels of World Bank, a latest report by IMF says that India is poised to emerge as the fastest growing major economies, even as one-off effects due to policies implemented by Narendra Modi-led government such as demonetisation and GST begin to fade away. Interestingly, while World Bank has pegged India to grow at 7.3% in the current fiscal, IMF has forecasted a GDP growth of 7.4% surpassing rival China to emerge to reclaim the spot of fastest growing major economy in the world. Earlier, last week, a report by Asian Development Bank had pegged India’s economic growth forecast at 7.3%.

While the individual growth forecasts may vary slightly, there seems to be a common observation on structural reforms of GST and demonetisation- the one-off policy related factors which impacted growth are now behind us, and the implementation of the new indirect tax regime will lead to a slew of benefits for the economy. We take a closer look at what IMF, World Bank as well as Asia Development Bank have to say about these reforms.

IMF

Noting the policy effect of demonetisation, IMF notes that due to recovery from the currency exchange initiative, there should be firming of growth in the near-term. Further, implementation of the national goods and services tax supported by strong private consumption growth will also spur growth, the IMF said. Taking specific note of GST’s impact on growth, IMF said that implementation of the GST, will help reduce internal barriers to trade, increase efficiency, and improve tax compliance. “With growth picking up after falling sharply in the second quarter of 2017 due to “one-off factors”, India in 2018 and 2019 would re-emerge as one of the fastest growing major economies,” IMF said.

World Bank

Giving a thumbs up to GST, World Bank said that that the new indirect tax regime may provide additional momentum to government’s revenue collection in coming days. India’s economy, which witnessed a slowdown after demonetisation and the GST, has recovered from the impact of the twin policies, the World Bank said. In its  latest South Asia Economic Focus Spring report, World Bank said, “India’s economy has bottomed out from the deceleration caused by one-time policy events such as demonetisation and GST introduction.”

Asian Development Bank

In its Asian Development Outlook 2018, the Manila headquartered Asian Development Bank has credited the Modi-government’s GST saying that growth will pick up as the new tax regime improves productivity. ADB said, “Also set to catalyse growth are benefits from the GST as it mitigates geographic fragmentation and adds revenue to the exchequer, as well as further progress on fiscal consolidation and reform to promote FDI.”

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