Demonetisation Will Bring 'Cleaner, Bigger GDP': FM -
Demonetisation Will Bring 'Cleaner, Bigger GDP': FM
Posted 01 Feb 2017 01:25 PM

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India is a "bright spot" in the world economy, Finance Minister Arun Jaitley said as he unveiled his annual Budget today, adding that the impact on growth from the government's cash crackdown would wear off soon.

"We are seen as an engine of global growth," Mr Jaitley said in the opening remarks of his fourth Budget.

Prime Minister Narendra Modi's surprise decision in November to scrap high-value notes worth 86 per cent of India's cash in circulation has hit consumer demand, disrupted supply chains and hurt capital investments, though Mr Jaitley stressed "the impact will not spill over to next year." He said the demonetisation drive is a "bold and decisive measure", and that "GDP will be bigger, cleaner" as a result.

The worst of the cash crunch is now over and the government expects it to be fully cleared by the end of April. A private manufacturing survey on Wednesday showed business is slowly returning to normal.

Still, the finance ministry forecasts that growth could dip to as low as 6.5 per cent in the current fiscal year to March, before picking up slightly in the coming fiscal year to between 6.75 per cent and 7.5 per cent.

That is below the target rate of 8 per cent or more that PM Modi needs to create enough jobs for the 1 million young Indians who enter the workforce in India - a nation of 1.3 billion where half the population is below the age of 25.

Arvind Subramanian, the government's Chief Economic Adviser, yesterday advocated slashing personal income tax and accelerating cuts in corporate tax rates. He cautioned, however, against pursuing debt-fuelled fiscal expansion.

Still, economists are pencilling in a federal fiscal deficit of 3.3 per cent of GDP for 2017-18. That would be higher than the 3 per cent pledged earlier but lower than 3.5 per cent that the government has budgeted for the year soon to end.

The rollout of a nationwide Goods and Services tax (GST), expected in July after years of delays, could also weigh on economic growth.

Countries that have introduced GST in the past have often faced a relative economic slowdown before the benefits of a unified tax regime feed through.

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