Economic Survey says 2016-17 marked by two major domestic policy developments

Aditya Vaibhav

New Delhi :  Amidst the knee jerk reaction on part of the US on new H1-B visas, President of India Pranab Mukherjee a yaddressed joint session of both Houses of Parliament on January 31. Shortly after the Prez speech, Finance Minister aand noted attorney Arun Jaitley tabled the Indian Economic Survey for FY 16-17 in Parliament according to which against the backdrop of robust macro-economic stability, the year was marked by two major domestic policy developments-the passage of the Constitutional Amendment, paving the way for implementing the transformational Goods and Services Tax (GST) and the action to demonetize the two highest denomination notes.

The GST is supposed to create a common Indian market, improve tax compliance and governance and boost investment and growth. It is also a bold new experiment in the governance of India’s cooperative federalism. The unorganized sector needs to study this in order to stay as effective as they were earlier.

In sectors like infrastructure and woodworking where the influx of unorganized sector is as far as 85%, the impact will be high and the sector needs to handle that. The Survey Report also says that demonetisation has had short-term costs but holds the potential for long-term benefits. Follow-up actions to minimize the costs and maximize the benefits include: fast, demand-driven, remonetisation; further tax reforms, including bringing land and real estate into the GST, reducing tax rates and stamp duties and acting to allay anxieties about over-zealous tax administration.These actions would allow growth to return to trend in FY 17-18, possibly making it the fastest-growing major economy in the world, following a temporary dip in FY 16-17.

The major short term macro-economic challenge is to re-establish private investment and export as the major drivers of growth and reduce reliance on Government and private consumption. Addressing the Twin Balance Sheet problem—over-indebted corporates and bad-loan-encumbered public sector banks—a legacy of the years surrounding the Global Financial Crisis will be vital.