The Positive Impact of GST and Demonetization on the Indian Economy
The recent industrial output figures suggest that demonetization and the implementation of Goods and Services Tax (GST) have had a mixed impact on the Indian economy. While some sectors faced temporary challenges, the long-term prospects remain positive. This article explores the positive impact of these two economic reforms and their overall influence on the Indian economy.
Understanding the Impact of GST and Demonetization
The introduction of GST and demonetization has been met with varied reactions from different stakeholders. While some individuals and businesses faced short-term difficulties, the long-term benefits are becoming increasingly evident. It is essential to understand the reasons behind these changes and their potential positive impact on the economy.
Addressing Concerns About GST
One of the main concerns about GST was the parallel economy, which involves unreported income and transactions. Many individuals and businesses were dependent on this informal sector for their economic activities. The shift to a formal, tax-compliant economy under GST has forced them to adapt and register for tax compliance.
People who engage in black money activities were likely to face temporary hardships. However, individuals who have since switched to formal methods have benefitted from improved economic conditions. Now, with interest rates decreasing by 2-3%, righteous businesses stand to gain. Additionally, the emphasis on digital payments is driving economic growth in the digital domain.
Demystifying Demonetization
The demonetization move aimed to tackle black money and counterfeit currency. Initially, it caused a cash crunch, but this was only temporary. The government aimed to clean up the financial system by bringing unaccounted money into the formal sector. The money deposited in banks from closed notes is circulating through the economy, leading to a reduction in interest rates.
Moreover, the government has provided numerous opportunities for people to deposit their black money, such as Jan Dhan accounts, which have benefitted the poor. While some individuals did collect commissions, this is a short-term issue that has helped in the long-term development of the economy.
Impact on the Economy
The GDP growth rate has shown a reduced figure for the first quarter of fiscal year 2017-18. However, this is primarily due to the immediate impacts of demonetization and the implementation of GST. The temporary reduction in manufacturing and employment is expected to reverse as industries resume production and start new manufacturing units post-GST.
Furthermore, the monsoon season and the completion of the first crop have helped the agricultural sector, contributing to a positive outlook for the next few quarters.
Analyzing the Higher Taxes
The increase in taxes is driven by the government's efforts to boost public finances. However, the current tax base is limited with only 3% of Indians paying income tax. This can be rectified by expanding the tax base and encouraging more people to file their taxes. Lower taxes on petroleum products could further help in reducing inflation and addressing the anti-incumbency factor.
Conclusion
In conclusion, contrary to what some might believe, the Indian economy is not in dire straits. The reduction in GDP for a specific quarter is a short-term phenomenon. The positive impact of GST and demonetization will be more apparent in the quarters to come. Patience and continued reforms will lead to sustainable economic growth and improved prospects for India.
By understanding the positive outcomes of these economic reforms, we can look forward to a brighter future for the Indian economy.