GST Will Add to India’s Growth: Jaitley in Defence of GDP Drop

The GDP data released on Wednesday showed that growth slipped to 6.1 percent after demonetisation.

Union Minister for Finance, Defence and Corporate Affairs, Arun Jaitley addresses a press conference on three years achievements of NDA-led government at the Centre, in New Delhi on Thursday. (Photo: PTI)

Finance Minister Arun Jaitley on Thursday backed the GDP numbers for the last fiscal, saying a 7-8 percent growth is “fairly reasonable” in the current global backdrop.

There are several factors that contribute to GDP in a particular quarter, and some slowdown was visible globally before demonetisation took place, he told reporters in New Delhi on the sluggish growth in the January-March quarter.

“...There is also the impact on various sectors, the 9 -10 percent growth, normally [seen] in services and financial sectors, had come down,” Jaitley said at an event to announce achievements of his ministries (finance and defence) in the three years of the Bharatiya Janata Party-led government.

The GDP data released on Wednesday showed that growth slipped to 6.1 percent in the last quarter of financial year 2016-17, while the economy grew 7.1 percent during the full year.

Watch Finance Minister Arun Jaitley speak on the GDP below:

NPA Resolution Work in Progress

He said the resolution of staggering levels of bad loans is work in progress, and some action will be taken within the next few days under the recently passed NPA (non-performing assets) ordinance. With the ordinance, the government empowered the Reserve Bank of India to ask banks to initiate insolvency proceedings to recover bad loans, and promised more measures to resolve the NPA crisis.

Mounting bad loans also affect the capacity of the banking system to support growth, he said.

Linked to it is the challenge of wanting to increase private sector investment, even though our FDI and public investments have significantly increased.

Arun Jaitley, Finance Minister

GST To Add To Country's Growth

Jaitley said the Goods and Services Tax (GST) will add to India’s growth, and the Centre is prepared to rollout GST by 1 July. Chief Economic Adviser Arvind Subramanian, who was also present at the event, said the rollout of the new indirect tax regime will both reduce inflation and increase consumption, as prices of commodities are expected to fall.

The Incidence of tax is going to come down, so it will both reduce prices and increase consumption...we expect implementation challenges to GST, but the economic effects of tax structure will be positive for reducing inflation as well as increasing consumption.

Arvind Subramanian, Chief Economic Adviser

Tax Amnesty Scheme Fails To Get Good Response

Pradhan Mantri Garib Kalyan Yojana (PMGKY), the tax amnesty scheme introduced post the government’s demonetisation move, failed to get a good response as the tax rate was considered too high, Revenue Secretary Hasmukh Adhia said at the event.

The scheme received income declarations worth Rs 5,000 crore, he said. Given the 50 percent tax rate under the scheme, the government will receive Rs 2,500 crore in tax collections. The remaining 25 percent of the income declared would be locked in for a period of four years.

The response has not been so good...There are mainly two factors for it. One, even before the scheme was announced, people had tried to put their cash into different accounts, second was the rate.

Hasmukh Adhia, Revenue Secretary

However, Jaitley said that PMGKY was not an isolated scheme in the previous financial year. The total disclosures should be looked at taking under consideration all tax amnesty schemes of the government.

(This story was originally published on BloombergQuint.)