Note ban to shave 0.5% from GDP growth rate

The shock demonetisation will shave off a good 0.5 percentage point from GDP growth this fiscal, pulling it down to 6.5 per cent, Economic Survey said on Tuesday while predicting "return to normal" 6.75-7.5 per cent in the next financial year and calling for bold tax cuts.

The pre-Budget pointer called for cut not just in individual income tax rates and a timetable for reducing the corporate taxes but also for widening the net to progressively encompass "all high incomes".

Though the Survey did not indicate what it meant by all high incomes, the reference may be to agriculture income which is currently out of the tax net. Invoking Mahatma Gandhi's vision of 'wiping every tear from every eye', it made a pitch for implementing Universal Basic Income (UBI) to entitle the poor with at least some income and thus eliminate poverty.

"Even the likely reduction in the rate of real GDP growth of 0.25 percentage points to 0.5 percentage points (due to junking of old 500 and 1000 rupee notes) relative to the baseline of about 7 per cent still makes India's growth noteworthy given the weak and unsettled global economy which posted a growth rate of a little over 3 per cent in 2016," it said.

Indian economy had grown at a revised rate of 7.9 per cent in 2015-16 and was projected to grow by 7.1 per cent in the current fiscal by the Central Statistical Organisation, which did not account for disruption caused by demonetisation.

"Over the medium run, the implementation of the GST, follow-up to demonetisation, and enacting other structural reforms should take the economy towards its potential real GDP growth of 8 per cent to 10 per cent," said the Survey tabled in Parliament by Finance Minister Arun Jaitley ahead of Union Budget 2017-18 to be unveiled on Wednesday. For the 2017-18 fiscal, beginning on April 1, it put the real GDP growth at 6.75 per cent to 7.5 per cent range. "Even under this forecast, India would remain the fastest growing major economy in the world."

Listing surge in global oil prices and possible eruption of trade tensions amongst the major countries as risks, it said investment-to-GDP ratio has not just been lower than the desirable levels but has been consistently declining over the last few years.