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.

Highlights

  • 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.

 

 

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