Chief Economic Advisor to the Modi Government Arvind Subramanian today presented the Economic Survey for 2016-17. The document was also presented in Parliament by Finance Minister Arun Jaitley. The broad parameters of the ES was on GDP growth which is lower than 7.1 %. The GDP growth for the next fiscal is in the range of 6.75-7.5 % while for this fiscal it is pegged at 6.5 %. Interestingly, the income tax net is now set to be gradually widened to bring within its ambit all high income earning individuals and companies. What is of great interest, however is the impact of demonetization. While the CEA mentioned in a jocular vein that demonetization was an unusual and unique monetary experiment and that five years hence there will be 50-100 PhDs on India’s experiment with demonetization, he made no denial that there was a cash crisis and that people and businesses did suffer in the short term. He however, stated that demonetization was a financial, social and governance engineering that was a felt need and that the costs and benefits cannot be measured in the short term. The short term cost is real and significant but it has the potential for long term benefit. Demonetization has however affected the growth rate by 0.25 -0.5 %. The exercise has simultaneously reduced supply of cash but increased the supply of deposits. However, what remains to be seen is how these deposits are deployed by financial institutions.
Economic analysts foresee that demonetization could affect supplies of agricultural products like sugar, milk, potatoes, onions and such like. The ES proposes Universal Basic Income Scheme as an alternative to the multiple state subsidies for poverty alleviation. The gains from GST could take the growth rate trend to the range of 8-10 %. The Survey has also proposed a clear, stable, non-discretionary tax regime. What will be interesting to watch is the debate in Parliament over the budget presentation.