March 24, 2017

Digital payments must be incentivized for cash-lite economy: Economic Survey

02 February 2017, 12:39 | Felicia Christensen

Economic Survey to be tabled today: Here are 5 things we need to keep a close eye on

Chief economic adviser Arvind Subramanian is expected to deliberate in depth on the economic logic of demonetisation and its consequences for the Indian economy

"CII is in agreement with the Economic Survey that the impact of demonetization on the GDP growth rate will be temporary and that once remonetisation is effected, the growth rate would revert to over 7 per cent", stated Chandrajit Banerjee, Director General, CII.

"The follow-up actions to minimise the costs and maximise the benefits include fast, demand-driven remonetisation, (and) further tax reforms", the Survey, presented in Parliament by Finance Minister Arun Jaitley, said.

The survey, prepared by chief economic adviser Arvind Subramanian, said that the main reason for slower growth in the current fiscal year was a drop in fixed investment, as stressed balance sheets in the corporate sector continued to take a toll on firms' spending plans. The Survey pointed it out that demonetisation exposed GDP growth to certain risks.

For the 2017-18 fiscal, beginning on April 1, the Survey put the real GDP growth at 6.75 per cent to 7.5 per cent range.

The Survey pitched for a free trade agreement with European Union and the United Kingdom, observing that more FTAs, GST-induced tax rationalisation, and labour law reforms would add considerably to the job creation potential of the clothing and footwear sectors. "Demonetisation simultaneously reduced supply of cash, and increased supply of deposits", he said.

Still, Mr Subramanian acknowledged that official GDP figures may not fully reflect the "real and significant hardships" experienced by the informal sector, in which an estimated nine out of 10 Indian workers are employed.

The Economic Survey said the two prerequisites for a successful UBI are a functional JAM (Jan Dhan, Aadhar and Mobile) system to ensure that the cash transfer goes directly into the account of a beneficiary, and Centre-State negotiations on sharing the programme's cost. "Demonetisation was a potentially powerful stick which now needs carrots as complements", the Survey said. "I think there has been hardship and inconvenience especially for those in the informal sector but there is also potential for long-term benefits", he added.

The Survey highlights difficulties in privatising public enterprises, even for firms where economists have made strong arguments that they should be in the private sector. India's competitors enjoy better market access by way of zero or at least lower tariffs in the two major importing markets, namely, the U.S. and European Union (EU), the survey stated.

The survey also suggested discussing a proposal to introduce a Universal Basic Income for all citizens as part of efforts to reduce poverty.

According to the survey, in both apparel and footwear sectors, tax and tariff policies create distortions that impede India gaining export competitiveness.

The survey added that these sectors provide huge opportunities for creation of jobs for the weaker sections, especially for women, and can become vehicles for broader social transformation in the country.

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