Raghuram Rajan, former Reserve Bank of India (RBI) governor, said that the central bank had conveyed to the government that it didn’t believe demonetisation would be worth it.
He said, the jury is still out. We have an argument that it will improve compliance till we see the last tax numbers in, he feel the jury is still out. He would suspect that a substantial part of the growth slowdown was because of the effects of demonetisation .. some of it was in the informal economy which weren’t immediately captured, which we are seeing now.
The impact of the contractionary demand shock triggered by the note ban will gradually radiate from cash intensive activities to virtually every sector of the economy.
In most emerging economies, an important driver of GDP growth is investment demand. In India , private sector investment has been sluggish for consecutive quarters over the last two years. The principal driver of GDP growth in India in recent times has been private consumption demand, which contributes 60% to the GDP.
GDP growth rate was estimated at 7.3% in the July – September quarter of 2016- 17. The marginal increase from 7.1% in the April-June quarter was primarily driven by agricultural , construction and the services sector. Ironically, these sectors are now likely to bear the brunt of the currency- ban shock. Year – on-site year manufacturing growth rate has declined from 9.1% in the previous quarter to 7.1%. In the July- September quarter investment demand contracted by 5.6%, resulting in a large negative contribution to the GDP.
Raghuram Rajan said: now I think in the long term, GST will have very positive effect. There are people who say we should have delayed it. My sense is many of the problems just come from doing it. So, if we solve those problems and go forward that will be very beneficial.”
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