GDP grew 6.9% in Oct.-Dec. on increased spending, says poll
Why in news
India’s economy grew at its fastest pace in a year in the October-December quarter as consumers, businesses and the government stepped up spending, a Reuter’s poll predicted.
- This suggests that disruptions from a shock ban on high-value currency notes in November 2016 and the chaotic launch of a goods and services tax (GST) in July are fading.
- Gross domestic product grew 9% in the October- December quarter from a year earlier, according to the poll of more than 35 economists, taken over the past week.
- In July-September, the economy grew 6.3% annually, a return to a faster growth trajectory after five consecutive quarters of slowdown.
- In the latest quarter, “government spending was stronger and private consumption demand was robust as well, as seen in strong growth in auto sales,”
- “Recent buoyancy in indicators such as cement output also points to recovery in segments such as construction, and real estate that were hit most from demonetization.”
- Still, growth in the world’s seventh-largest economy is far from the near-double digit pace recorded during the years before the financial crisis.
- What has also weighed on the economy is exports, which took a hit last year from an appreciating rupee. The rupee strengthened 6.5% against the dollar in 2017.
2016 Indian banknote Demonetization
- On 8 November 2016, the Government of India announced the demonetization of all ₹500 and ₹1000 banknotes of the Mahatma Gandhi Series.
- The government claimed that the action would curtail the shadow economy and crack down on the use of illicit and counterfeit cash to fund illegal activity and terrorism.
- The sudden nature of the announcement and the prolonged cash shortages in the weeks that followed created significant disruption throughout the economy, threatening economic output.
Goods and Services Tax
- Goods and Services Tax (GST) is an indirect tax levied in India on the sale of goods and services.
- Goods and services are divided into five tax slabs for collection of tax – 0%, 5%, 12%, 18% and 28%. Petroleum products and alcoholic drinks are taxed separately by the individual state governments.
- There is a special rate of 0.25% on rough precious and semi-precious stones and 3% on gold.
- In addition a cess of 22% or other rates on top of 28% GST applies on few items like aerated drinks, luxury cars and tobacco products.
- The tax came into effect from July 1, 2017 through the implementation of One Hundred and First Amendment of the Constitution of India by the Modi government.
- The tax replaced existing multiple cascading taxes levied by the central and state governments.
- The tax rates, rules and regulations are governed by the Goods and Services Tax Council which comprises finance ministers of centre and all the states.
- GST simplified a slew of indirect taxes with a unified tax and is therefore expected to dramatically reshape the country’s 2 trillion dollar economy.