After demonetization and GST implication: GDP prices have finally gone high
Barely six months after demonetization, India’s Gross Domestic Product or GDP growth rate had slumped down to 6.1 per cent in January-March period, lowest in more than two years. This growth rate was unexpected as the Central Statistics Office earlier in January had estimated 7.1 per cent growth as compared to 7.6 per cent in 2015-16. With this March quarter report, people were pointing on PM Modi for India had lost its status as the world’s fastest growing major economy.
After Demonetization and GST rule laid, the prices of GDP which was going low and low is rising up these days, it is a good news to hear. All the above accusations on PM Modi are now cleared.
“The GDP rate which had slowed down to 5.7% has now risen up to 6.3%”. And this is all due to the success rate under the manufacturing sector, which had seen a decline due to Demonetization and GST.
Why GST and Demonetization alone are not responsible for GDP growth?
As the answers have to be shifted from multiple, intertwined narratives: the political, the economic as well as the purely business. There are multiple villains to blame, the most immediate being the damper of demonetization of November 2016 and the implementation of the goods and services tax (GST) in July this year.
Among the few positives that kept growth going in April-June was government expenditure. Then there was also the gold buying, often a sign of distrust in financial investments. Expenditure under “valuables” in the April-June quarter grew by 3.4% as against 1.2-1.3% range seen in all the four preceding quarters. While gold is often seen as a secure asset, the buying may also be partly explained as a pre-GST purchase.
While GST pushed up gold buying, it pushed down manufacturing. Manufacturing companies sent out their old stocks to market, holding back on production. It brought down manufacturing sector growth from 5.3% in January-March to 1.2% in April-June. However, the chief economist of SBI points out that, this de-stocking also helped to boost the growth under trade, transport and communication.
And the impact of the 80 basis points lower weighted-contribution from manufacturing is perfectly balanced by a similar higher contribution from trade, transport and communication. “It’s incorrect to say that growth was pulled down by GST,” she says.
Dun & Bradstreet did a survey on the GST preparedness of small and medium enterprises in April and May of 2017 and found the sector suffering from lack of clarity on the new tax regime. D&B’s lead economist Arun Singh had felt that the real impact of GST can be clearly understood only by December 2017.
The central Government has kept up its promise.
This rise was expected by the central government as its promise. And has the hope for further improvement in the future days to benefit the economy, Finance and corporate affairs minister Arun Jaitley, has now addressed the media.
He also said that the BJP government under PM Modi is sure to get its fruits for its hard work, and is heading towards the right direction in order to take the Indian economy to greater heights.