Leading global rating agency S&P on Wednesday said that demonetisation and the Goods and Services Tax (GST) could result in a wider tax base and greater participation in the formal economy, although disruption by demonetisation could spill over into FY2018.
This should benefit India’s business climate and financial system in the long run. “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,” S&P Global Ratings credit analyst Kyran Curry, wrote in a report.
Curbing growth
However, it said, the shock of demonetisation would not be absorbed within the next few months and the economic disruption will spill over into fiscal 2018, and potentially coincide with the introduction of the GST.
The GST is expected to be implemented by September 2017. India’s corporates and banks are likely to face short-term downside risk as a demonetisation-related cash crunch curbs the country’s GDP growth, according to an article by S&P titled, ‘India’s demonetisation and the GST: Short term pain for long term gain’. S&P recently revised down its estimated economic growth rate for the fiscal year ending March 31, 2017, by one full percentage point, to 6.9 per cent, to reflect the disruption caused by demonetisation
