Demonetisation, GST impact on economic growth: Are corporates finally speaking up on govt policies?

Ever since the GDP numbers for April-June quarter came in at a dismal three-year low of 5.7 percent, several industry experts and economists have been pointing fingers at the twin effects of demonetisation and hasty implementation of the goods and services tax (GST) for the current slowdown and bleak growth outlook. India Inc, which had been so far cautious about their views on the government’s twin initiatives, seems to have of late started speaking on how the two steps (demonetisation and GST) have hit their businesses and in turn put pressure on the overall sales. Last week, engineering & construction company Larsen & Toubro’s group executive chairman AM Naik blamed demonetisation and the rollout of GST for India’s lacklustre growth. According to Naik, India would have advanced at a much faster pace of 7 percent but fell behind the curve due to noteban and the implementation of indirect tax reform. He also feared that India’s growth may remain stagnant for nine more months as private sector investments may not take place for at least two years. [caption id=“attachment_4081225” align=“alignleft” width=“380”]  Reuters[/caption] “If these two were not there, I think economic growth could have been 7 percent instead of 5.7 percent. I am assessing that things are not going to be better. May remain stagnant or steady for a maximum of nine months,” Bloomberg Quint reported quoting AM Naik. It has been close to one year since the demonetisation of high-value currency notes was announced by the Narendra Modi government, but the move resulted in massive disruption, especially, in the rural section of the country, resulting in massive job losses in the unorganised sector and hurting consumption. According to Hindustan Unilever, the country’s largest private sector company in the FMCG space, demonetisation and GST have continued to haunt the rural markets. “From double-digit growth in FMCG across urban and rural markets in 2012, the overall segment has fallen to single-digit growth, with rural lagging urban market,” Economic Times reported quoting HUL MD Sanjiv Mehta. Fallout of demonetisation and the crisis in agriculture has resulted in rural market growth lagging behind urban centres for the first time since 2011-12, Mint report said. The problem has been exacerbated temporarily by the introduction of the goods and services tax (GST) on 1 July that resulted in so-called destocking, the report said citing HUL’s MD Sanjiv Mehta. Earlier in July, Bajaj Auto chairman Rahul Bajaj raised a question to the government on whether the demonetisation exercise had achieved its aims. “It is questionable if it (demonetisation) really worked,” the ET  report said then quoting Rahul Bajaj, who was addressing the shareholders at the company’s AGM. “Demonetisation was a favourite (topic) of our PM, no one criticises it… People voted for him (in the Uttar Pradesh assembly elections) still, saying it is just a short-term pain for long-term gain,” he said. “All the economists are waiting for that gain to come. I don’t see that yet,” ET had reported quoting Bajaj then. Besides the large corporates, top heavyweights inside the BJP, too, have criticised the government for pushing the economy in a slowdown mode. Senior BJP leader and former finance minister Yashwant Sinha has said that the distress in the economy is so deep that a revival is unlikely before the next general elections and warned of a hard landing. According to him, the GDP growth for April-June as per old method of calculation will be 3.7 percent or even less, not 5.7 percent as the government data shows. Sinha has said that “demonetisation has proved to be an unmitigated economic disaster, a badly conceived and poorly implemented GST has played havoc”. This has resulted in millions of job losses and even sunk businesses, The Indian Express report said.