Economic Survey 2017 Gist Pdf Download IAS BABA – Economic Survey Gist
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The Economic Survey 2016-17, written by Dr. Arvind Subramanian, Chief Economic Advisor, bears a complete new look in terms of the format and the subject matter.
Economic Survey has provided a refreshingly realistic assessment of the many challenges facing the Indian economy in the coming years.
This year’s Survey comes in the wake of a set of volatile international developments – Brexit, political changes in advanced economies-and two major domestic policy developments: the GST and demonetization.
- A radical governance-cum-social engineering measure designed to tax holdings of black money.
- was enacted on November 8, 2016
- The two largest denomination notes, Rs 500 and Rs 1000—together comprising 86 percent of all the cash in circulation—were “demonetised”
- There were two previous instances of demonetisation, in 1946 and 1978, the latter not having any significant effect on cash
- But the recent action had large, albeit temporary, currency consequences.
Aim of demonetization:
- to curb corruption
- 2. to curb counterfeiting
- 3. to curb the use of high denomination notes for terrorist activities
- 4. to curb accumulation of “black money”, generated by income that has not been declared to the tax authorities.
- 5. The honest citizens want that government fights against corruption, black money, benami property, terrorism and counterfeiting.
Long-term potential of demonetization:
- greater digitalization of the economy
- increased flows of financial savings
- greater formalization of the economy
- All of which could eventually lead to higher GDP growth, better tax compliance and greater tax revenues.
- Demonetization has been a redistributive device to transfer illicit wealth from the rich to the rest, via the government.
- misuse of cash has led to artificial increase in the cost of goods and services like houses, land, higher education, health care and so on.
Thus, this move is expected to bring more transactions under tax net, both direct and indirect taxes would move up, more digital transactions will take place and reduction in parallel economy will increase the size of formal economy as more people will disclose income and pay taxes. This will make India a more tax-complaint society.
Short-term costs or short-term macroeconomic impacts due to demonetization:
- inconvenience and hardship especially those in the informal and cash-intensive sectors of the economy who have lost income and employment.
- There have been reports of job losses, declines in farm incomes, and social disruption, especially in the informal, cash-intensive parts of the economy
- The benefits of lower interest rates and dampened price pressure may have cushioned the short-term macroeconomic impact.
Demonetisation affects the economy through three different channels. It is potentially:
- an aggregate demand shock because it reduces the supply of money and affects private wealth, especially of those holding unaccounted money;
- an aggregate supply shock to the extent that economic activity relies on cash as an input (for example, agricultural production might be affected since sowing requires the use of labour traditionally paid in cash); and
- an uncertainty shock because economic agents face imponderables related to the magnitude and duration of the cash shortage and the policy responses (perhaps causing consumers to defer or reduce discretionary consumption and firms to scale back investments).
Follow-up actions to minimize the costs and maximise the benefits include:
Demonetisation has had short-term costs but holds the potential for long-term benefits. Below are the follow-up actions to minimize the costs and maximise the benefits include:
- fast, demand-driven, remonetisation (by supplying as much cash as necessary, especially in lower denomination notes)
- further tax reforms , including bringing land and real estate into the GST
- reducing tax rates and stamp duties
- acting to allay anxieties about over-zealous tax administration
These actions would allow growth to return to trend in 2017-18, following a temporary decline in 2016-17.