Just over two weeks after the government’s November 8 demonetisation move, Singh had in Parliament termed it a “monumental mismanagement” and “legalised plunder”.
Former Prime Minister Manmohan Singh on Monday cautioned the “hasty” implementation of the goods and services tax (GST), along with the note ban, would dent economic growth, as these have adversely affected the informal sector. Singh, who had in November last year warned of demonetisation shaving two percentage points off GDP, told CNBC-TV 18: “Both demonetisation and the GST have had some impact (on GDP growth). Both would affect the informal sector, the small scale sector… these sectors today are responsible for 40% of GDP.” Around 90% of India’s employment is in the informal sector, he added. Singh said the GST “has been put on practice in haste” and “there are lots of glitches which are coming out now”. “These are bound to affect the GDP growth adversely,” he added.
Just over two weeks after the government’s November 8 demonetisation move, Singh had in Parliament termed it a “monumental mismanagement” and “legalised plunder”. GDP growth in the first quarter of current fiscal hit a three-year low of 5.7%, against 6.1% in the previous quarter and 7.9% in the year-ago period. Growth in private consumption expenditure — a major driver of economic expansion in recent years — slowed down to 6.7% in Q1FY18 from 7.3% in the previous quarter. Although growth in fixed capital formation, a gauge for investment, reversed the previous quarter’s contraction, it stood at just 1.6% in Q1FY18. Manufacturing growth plunged to just 1.2% and expansion in construction remained muted at 2% in Q1, although the services sector saw an uptick from the previous quarter. While the government said the de-stocking ahead of the GST roll-out on July 1 was mostly to blame for the slowdown in Q1, especially in manufacturing, the opposition parties and analysts had added that the staggered impact of demonetisation played a part as well.
Senior government officials, however, had earlier said the GDP growth was anyway coming down even before demonetisation, hinting the current slowdown can’t be blamed on just note ban. GDP growth slowed consistently since the beginning of the last fiscal— from 7.9% in Q1FY17 to 7% in Q3 — thus dropping 90 basis points over three quarters before demonetisation kicked in, while it slowed another 130 bps in the past two quarters. GST subsumed over a dozen central and state levies like excise duty, service tax and VAT to make the system less complicated and more robust, but technical glitches in registration and tax filing were encountered initially, prompting the government to relax return deadlines.
Last month, the RBI said almost 99% of the `15.44 lakh crore demonetised notes were deposited with the banking system, leading to the opposition questioning the efficacy of the government’s demonetisation decision to curb black money. For its part, the government has said just because the notes were back with the banking system doesn’t mean they were all legally accounted-for cash. It also pointed at higher tax growth and compliance following note ban to suggest its intended objectives were being realised. Mining the data from the demonetisation drive, the government had also identified over 18 lakh people whose income disclosed in tax returns were lower than their actual earnings.