Chanakya IAS Academy Blog

Notice

Note ban a radical measure: CEA

Chief Economic Adviser Arvind Subramanian said there was a sense of anxiety about the prospect of the economy post demonetization and stressed that there is a need to dispel fears of an overzealous tax regime in its aftermath.

Even he proposed the headline “the Chief Economic Advisor finally speaks on demonetization” for breaking his silence on the issue after 85 days.

Speaking post the presentation of the Economic Survey for 2016-17 in the Parliament he termed the move of demonetization as a radical currency cum governance cum social engineering measure to raise the cost of illicit and unaccounted transactions.

He declined to comment on its design and implementation, but did speak on short term costs and long term benefits, of an unusual monetary experiment aimed at a structural break. The short-term costs include hardships faced particularly by those in the informal sector.

Analyzing the various sectors of the economy post demonetization:

  • There is a marked decline in growth of bank credit and two-wheeler sales.
  • Farm sector: Cautions the Centre on the impact demonetization may have on supply of essential farm items.
  • Real estate: Prices may dip as investing undeclared income in real estate becomes tough. It also suggests bringing real estate within the ambit of GST.
  • Digitalization: Advocates a balanced approach and advices banks to facilitate interoperability. United payment interface(UPI) is the technology platform that will be the basis for ensuring inter-operability. But individual banks should facilitate not thwart interoperability.
  • Inflation: Retail inflation will remain below the RBI’s target of 5%, as demonetization would act as a dampener.
  • Jobs: Reforms in labour and tax laws to incentivize leather and apparel industry which can lead to large scale employment generation.

Growth estimate:

The Survey pegs economic growth in 2016-17 at 7.1%, which is based on information of months before the demonetization step was taken.
After a temporary slowdown in GDP growth, the survey expects the economy to return to normal, once the scrapped currency is replaced. In the long run, tax revenues and GDP growth will get bolstered.

Read 546 times

Leave a comment

Make sure you enter all the required information, indicated by an asterisk (*). HTML code is not allowed.