DeMo, GST more disruptive than expected: India Ratings

Sanjeev Sharma

Tribune News Service

New Delhi, September 27

The combined effect of demonetisation and introduction of Goods and Services Tax (GST) is proving to be more disruptive for the economy than was expected earlier, according to India Ratings which has cut its earlier GDP growth estimate of 7.4% to 6.7% during financial year 2018.

On the after-effects of demonetisation on the economy, India Ratings said sucking out the high-denomination currency while failing to remonetise the economy quickly has in many cases proved fatal for the unorganised sector and small and medium enterprises (SMEs) where business transactions are heavily cash dependent. As these enterprises have still not been able to recover fully, their pain is finding a reflection in overall economic growth.

Although the rollout of GST was fairly smooth and the first month revenue collection was encouraging, some stress points have emerged. The destocking by manufacturers and the loss of liquidity for exporters due to delayed GST refunds has affected business activities in the economy, the agency said.

Poor gross domestic product (GDP) growth in two successive quarters —quarter 4 of FY17 and quarter 1 of FY18 — has changed the growth prospects for FY18, says India Ratings and Research.

The combined effect of demonetisation and introduction of goods and services tax (GST) is proving to be more disruptive for the economy than was expected earlier. While the introduction of GST cannot be faulted on account of its eventual benefit to the economy, the same cannot be said about the impact of demonetisation.

India Ratings said GDP growth will recover quarter-on-quarter in quarter 2 of FY18 with impact of demonetisation waning, teething problem arising out of GST implementation being looked into by the government and the festival season round the corner. However, it is unlikely to meet the agency’s earlier projection of 7.4% and will come down to 6.7% during FY18.