On Monday our Former Prime Minister Manmohan Singh took potshots at the Narendra Modi led central government, insisting that demonetisation and “hasty” implementation of GST have adversely impacted GDP growth.
“Both demonetisation and the GST have had some impact (on GDP growth),” he told media . “Both would affect the informal sector, the small-scale sector… the sectors today are responsible for 40 per cent of GDP.”
With informal and small-scale sectors accounting about 40 per cent of the USD 2.5 trillion economy, Singh said that the decision of demonetisation, coupled with GST, had an adverse impact on the economy.
“And the withdrawal of 86 per cent of currency plus also GST, because it has been put on practice in haste, there are lots of glitches which are now coming out. These are bound to affect the GDP growth adversely,” he said.
Earlier, Singh in his Parliment speech had described demonetisation of Rs 500 and Rs 1000 notes as a “monumental mismanagement”, “organised loot” and “legalised plunder” which would eventually shave off 2 per cent of the country’s GDP.
Notably, GDP growth in the first quarter of current fiscal slumped to a three-year low of 5.7 per cent, down from 7.9 per cent in April-June quarter of 2016. However, the government had blamed de-stocking ahead of the roll out of the Goods and Services Tax from July 1 as the primary reason for the fall in the GDP growth rate.
Last month, the Reserve Bank of India announced that nearly 99 per cent of the Rs 15.44 lakh crore demonetized currency had returned to the banking system, prompting critics to raise questions about the efficacy of the government’s note ban decision that was aimed at curbing corruption and black money.
Meanwhile, Union Finance Minister Arun Jaitley listed out the increase in the volume of digital transactions, widening of tax base and squeezed circulation of high denomination currency as the real measures of success of demonetization.
“Some circles have lack of understanding and measure the success of demonetization with only how much money reached banks,” Jaitley said at the launch of Google’s new digital payment app — Tez. “I have three red lines to measure the success of demonetization. First, how much volume of cash that RBI prints are we able to squeeze over time. High denomination currency has already squeezed in terms of volume.
The second test is that as its (demonetisation’s) consequence, how many assessees are we able to add and expand the tax base,” he said, adding that the third measure would be the increase in digital transaction volumes, he added.