Demonetisation shaves off GDP growth rate by up to 0.5 pc in FY’17

The Survey, presented by Finance Minister Arun Jaitley in Parliament today, said that the recorded GDP will understate impact on informal sector as its activities are not fully captured in the Index of Industrial Production.

These ‘contractionary’ effects due to demonetisation will dissipate by year-end when currency in circulation will once again be in line with estimated demand, it said.

As regards the impact of note ban on the real estate, the Survey said that the weighted average prices in eight major cities which was already on a declining trend fell further after November 8, 2016.

“It goes on to add that an equilibrium reduction in real estate prices is desirable as it will lead to affordable housing for the middle class and facilitate labour mobility across India currently impeded by high and unaffordable rents,” it said

The Survey also suggested fast remonetisation and especially, free convertibility of cash to deposits including through early elimination of withdrawal limits.

“This would reduce the GDP growth deceleration and cash hoarding,” it said, adding that continued impetus to digitalisation while ensuring that this transition is gradual, inclusive, based on incentives rather than controls and appropriately balancing the costs and benefits of cash versus digitalisation would maximise long-term benefits and minimise short-term costs.

It also suggested that following up on demonetisation, the government should bring land and real estate into the GST and reduce tax rates and stamp duties.

“An improved tax system could promote greater income declaration and dispel fears of over-zealous tax administration,” it added.