Economic Activity 'Adversely' Affected by Note Ban, Says Economic Survey

New Delhi: The Economic Survey has analysed the macro economic effects after demonetisation. It concludes that: “The balance of evidence leads to a conclusion that real GDP and economic activity has been affected adversely, but temporarily by demonetisation. The question is: how much?”

The survey lists the following points as evidence:

- Outflow of foreign portfolio investment, amounting to $9.8 billion in November and December

- Aggregate sowing of the two major Rabi crops — wheat and pulses —exceeded last year’s planting by 7.1% and 10.7%

- Property markets in the major cities, and sales of two-wheelers show a marked decline

- Indirect tax performance stripped of the effects of additional policy changes in 2016- 17 look less robust than the headline number

- Decisive policy actions to dispel fears of overzealous tax administration will help ensure that the gains of demonetization are permanent

- Private investment is unlikely to recover significantly

- Risk to economic growth from the extent to which effects of demonetisation could linger into next year, especially if uncertainty remains on the policy response

- Currency shortages also affect supplies of milk, sugar, potatoes and onions

- Magnitude of fiscal windfall from return of demonetized notes and Pradhan Mantra Garib Kalyan Yojana (where black money from VDIS will be deposited) uncertain

- The transition to the GST is so complicated from an administrative and technology perspective that revenue collection will take some time to reach full potential

- Muted non-tax revenues and 7th Pay Commission payout could add to fiscal deficit.

- An economy recovering from demonetisation will need policy support

- One radical idea to consider is the provision of a universal basic income