Source : Economic Times 30 May 2017
NEW DELHI: Giving thumbs up to the demonetisation of high value currency notes last year and the upcoming roll out of the goods and services tax (GST), the World Bank has said the two reforms will increase the formalisation of the Indian economy. In its latest India Development Update released on Monday, the World Bank said India’s economy will grow 7.2% in fiscal year 2017-18.
“In the long-term, demonetisation has the potential to accelerate the formalization of the economy… the implementation of the GST is a key complementary reform that will support formalization, as firms have a strong incentive to register with GST to obtain input tax credits,” the World Bank said in the biannual report themed ‘Unlocking Women’s Potential’.
GST, the report said, would lead to higher tax collection, greater digital financial inclusion and make India’s fundamentals stronger and yet not increase the burden on the poor. Given the efficiency and revenue gains that the reform will eventually achieve, the overall impact of the GST on equity and poverty is likely to be positive, it said.
“India remains the fastest growing economy in the world and it will get a big boost from its approach to GST which will reduce the cost of doing business for firms, reduce logistics costs of moving goods across states, while ensuring no loss in equity,” said Junaid Ahmad, World Bank country director in India. The World Bank said demonetisation only caused a temporary disruption in growth.
India’s economy was slowing down in early FY17, until the favourable monsoon started lifting the economy, but the recovery was temporarily disrupted by demonetisation.
GDP growth slowed to 7% year-on-year in the third quarter of 2016-2017 from 7.3% in the first quarter. “As a result, a modest slowdown is expected in the GDP growth in 2016-2017 to 6.8%,” the bank said.
While limited data is available, demonetisation may have had a disproportionate impact on poorer households, which are more likely to work in construction and informal retail. The social impact of demonisation could have been greater, it said.
For 2017-18, the bank has projected GDP growth of 7.2% and for 2019-20, a growth of 7.7%, riding on strong fundamentals, reform momentum and improving investment scenario.