Chief Economic Adviser Arvind Subramanian said on Tuesday that the process of remonetisation is expected to happen soon and one of the aims of the demonetisation of Rs. 1,000 and old Rs. 500 notes was to bring down real estate prices.
Speaking on the fallout of the note ban, he said it was "not appropriate to do a before-after analysis of GDP growth with respect to demonetisation."
He also pointed out that rise in oil prices and protectionism were among the many external challenges to the economy.
The CEA says real estate has seen a dip in prices and sales. This is good, as one of the aims of demonetisation is to bring down real estate prices. The 2016 real GDP growth is expected to slow down by 0.25-0.5%. A good follow-up of the GST will be to bring land and real estate within the GST.
The catch-up from demonetisation and export revival due to riding global growth could boost growth next year.
The external risks to this could be that oil prices could go higher, trade tensions could escalate, and protectionism could re-emerge, he notes.
The manner in which China and India have been rated is very inconsistent. There is a sense of uncertainty and anxiety in the economy and society arising from demonetisation and lack of job growth. The public debate on demonetisation has raised several issues to do with the implementation, costs and benefits, and implications for future economic policy.
There have been short term costs, hardships, especially to the informal sector.
Demonetisation has affected different forms of money very differently. Reduced supply of cash dramatically, but increased the bank deposits. So, the lending rates and g-sec rates came down but the price of cash went up.
The currency squeeze is less severe than what everyone perceived. Since December-end, the country is well on way to remonetisation, he says.
Last year was characterised by robust macroeconomic stability, significant reforms and tumultuous international events.
CPI inflation has come down, the current account deficit (CAD) has also come down from 3.5-4% to 0.5%. There has been a steady fiscal consolidation.
FDI inflows touched record levels in the second half of the year. Real GDP growth increased but stabilised. Nominal GDP growth declined.
''Despite all these achievements, it is very interesting that ratings agencies have not reflected that,'' points out the CEA.
The Economic Survey, which was tabled in Parliament by Union Finance Minister Arun Jaitley, says fiscal activism — giving a greater role to counter-cyclical policies and attaching less weight to curbing debt, embraced by advanced economies — is not relevant to India.
The Survey points out while the basic tenets of the Fiscal Responsibility and Budget Management Act (FRBM) Act 2003, remain valid, the operational framework needs to be modified for the fiscal policy direction of “India of today.”
'Labour migration at all-time high'
Migration of workers is at an all-time high, with female workers migrating at twice the rate compared to their male counterparts in the 2000s, notes the Survey.
“The study based on the analyses of new data sources and new methodologies also shows that the migration is accelerating and was particularly pronounced for females,” says an official statement.
Mr. Subramanian elaborates on the impact of demonetisation.
India needs an evolution in the underlying economic vision across the political spectrum and further reforms are not just a matter of overcoming vested interests that obstruct them, says the Survey. It also points out that the capacity of the State in delivering essential services such as health and education is weak due to high levels of corruption and red tape.
The Survey highlights the difficulties in privatising public enterprises, even for firms where economists have made strong arguments that they belong in the private sector. In this context, the Survey points to need to further privatise the civil aviation, banking and fertilizer sectors.
According to the Survey, redistribution by the government is far from efficient in targeting the poor.
The Survey lists the challenges that might impede India’s progress. These challenges are classified by the Survey as follows: ambivalence about property rights and the private sector, deficiencies in State capacity, especially in delivering essential services and inefficient redistribution.
Budget session of the Lok Sabha convenes. Obituary references are made.