Demonetisation, GST to be highly disruptive

Demonetisation, GST to be highly disruptive
15/12/2016 , by , in News/Views

S&P Global Ratings today said demonetisation and a likely GST rollout from September 2017 are likely to cast a “higher disruptive impact” on informal, rural, and cash-based segments of the economy.

“Indian government reforms will have long-term structural benefits, but carry short-term execution and adjustment risks,” S&P Global Ratings Credit Analyst Abhishek Dangra said in an article titled India’s Demonetization And the GST: Short-term Pain For Long-term Gain, published.

The rating agency recently revised downwards its estimated economic growth rate for 2016-17 by one full percentage point to 6.9 per cent to reflect the disruption caused by the surprise move of demonetisation.

It said the government’s decision to cancel the legal tender status of high-value rupee notes has caused a significant physical cash crunch.

“Both demonetisation and a goods and services tax (GST, expected to be implemented by September 2017) are likely to have a higher disruptive impact on the informal, rural, and cash-based segments of the economy,” S&P said.
“We believe such measures can promote greater economic flexibility, strengthen the business climate, funnel more wealth into the formal banking system, and help redress public finances over time,” said Kyran Curry, also a credit analyst of S&P Global Ratings.

“We expect lower private consumption in fiscal 2017, but expect demand to revive and growth to rebound in fiscal 2018. India should shortly revert back to an 8 per cent annual growth trajectory,” says Dharmakirti Joshi, Chief Economist of Crisil, a subsidiary of S&P Global.

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