Survey projects FY18 growth at 6.75-7.5 pc post-demonetisation

The real GDP growth in 2017-18 is projected to be in the range of 6.75-7.5 per cent, said the Economic Survey 2016-17, presented in Parliament by Union Finance Minister Arun Jaitley on Tuesday.

The Government has said that the adverse impact of demonetization on GDP growth would be transitional. The Survey stated that once the cash supply is replenished, which is likely to be achieved by the end of March 2017, the economy would revert to normal.

The Survey pointed out that demonetisation would have both short-term costs and long-term benefits. Briefly, the costs include a contraction in cash money supply and subsequent, albeit temporary, slowdown in GDP growth. While the benefits include increased digitisation, greater tax compliance and a reduction in real estate prices, which taken together could increase long-run tax revenue collections and GDP growth.

On the benefits side, early evidence suggests that digitisation has increased since demonetisation. On the cost side, effective cash in circulation fell sharply although by much less than commonly believed — a peak of 35 per cent in December, rather than 62 per cent in November since many of the old high denomination notes continued to be used for transactions in the weeks after November 8, 2016.

The Economic Survey stated that the weighted average price of real estate in eight major cities, which was already on a declining trend, fell further after November 8, 2016, with the announcement of demonetisation. It added that an equilibrium reduction in real estate prices was desirable as it would lead to affordable housing for the middle class and facilitate labour mobility across India — currently impeded by high and unaffordable rents.