Panel may seek study on impact of demonetisation
A parliamentary panel may ask the Narendra Modi government to study the impact of the 2016 invalidation of high-value banknotes and the 2017 introduction of the goods and services tax (GST) on key economic benchmarks such as gross domestic product (GDP), investment, and industrial production.
The panel may also flag “several inadequacies” in the way GDP — the value of goods and services produced in the economy — is calculated and insist that it take into account GST to “reflect reality”, HT has learnt.
The government justified the recall of old, high-value banknotes on grounds that it would help unearth black money and fake currency and curb terror financing. Later, it said the move would help shift India to a less-cash economy by promoting digital transactions. GST, which subsumed an array of local, state-level and central taxes, was billed as the biggest tax reform since Independence.
In a draft report, the Estimates Committee of Parliament, led by Bharatiya Janata Party (BJP) veteran Murali Manohar Joshi, acknowledged that the November 8, 2016 invalidation of ~500 and ~1,000 currency notes had led to an increase in digital transactions. GST kicked into force on July 1, 2017 .
HT has learnt that the draft report added: “The extent to which demonetization and GST have affected the GDP, investment, industrial production, credit growth, capacity utilization etc., their impact in concrete terms is yet to be worked out.” The panel has recommended that the impact of these policies on various parameters of the economy may be worked out and intimated to them within three months.
The draft report, a final version of which is expected to be tabled in Parliament in the upcoming budget session, effectively suggests a change in the way GDP is measured. In 2015, the government adopted a new method of calculating GDP, revising the base year on which comparisons are made to 2011-12 from 2004-05, expanding its coverage of manufacturing and including underrepresented sectors and data from the corporate database.
According to the new GDP series with 2011-12 as the base year, the economy grew 7.3% in the first four years of the National Democratic Alliance (NDA) government, outpacing the 6.7% and 6.4% achieved during the two terms of the previous United Progressive Alliance (UPA) government.
HT has learnt that the Joshi-led panel quoted former economic advisor Arvind Subramanian to say that “the most frequently used indicator for measuring growth of the economy, has many deficiencies and it has been elevated and given the sanctity that, may be, it does not deserve.”
The panel is likely to remark that the GDP growth does not necessarily mean that there is growth in every area and growth in the income of every individual.
Pointing out that the GDP measure does not take into account the depletion of natural resources such as water and the effects of an environmental crisis, the draft report of the panel said some socio-economic factors need to be accounted for to ensure it reflects “ground reality and is near to realty/ public perception thereby adding confidence in the government statistics”.
The Centre has already formed a sub-committee to look into ways in which data from GST Network, the technology backbone of the new taxation regime, can be used in compiling GDP.
“Understanding the impact of GST and demonetisation are welcome steps provided those are undertaken by academicians and not done in a haste to prove or disprove a certain idea. It will give out valuable lessons that India can share with the world,” said economist Tamal Sarkar.
“Sustainability devoid GDP growth rates are at best short term growths which may or may not be sustainable in the long run. It is time that GDP includes sustainability issues in a robust form such that one takes into account a growth phenomenon that is sustainable and reflects to a great extent the long run growth rate of the economy,” he added.