Thursday 2 May 2019

Impact of Demonetisation and GST on India’s GDP Growth in the Last Two Years


GDP in India is considered as an important growth rate through which the growth of the country can be accessed. It measures the total amount of goods and services in the country. It gets calculated in three ways – Production, Income, and Expenditure approach.

India’s Gross Domestic Product grew 7.3 percent in 2018 in comparison to last year. The GDP per capita of India in 2018 was USD 2,009, USD 66 higher than in 2017, it was USD 1,943.

India was worth 2600.82 billion US dollars in 2017. The GDP value of India represents 4.19 percent of the world economy. GDP in India averaged 545.87 USD Billion from 1960 until 2017, reaching an all-time high of 2600.82 USD Billion in 2017 and a record low of 36.54 USD Billion in 1960.

The condition of the country is not very good nowadays, the GDP rate has fallen. The 2 major causes for the same could be Demonetization and implementation of GST. Both factors have impacted the economic condition of the country.

Demonetization includes the forced conversion of cash into less liquid bank deposits, which generates a decline in employment, output, and borrowing by firms in the presence of downward wage rigidity. Households also get forced to move to noncash forms of payment to attenuate the impact of the cash shortage.

The immediate process of Demonetization has affected the country’s growth in various sectors including transport, communication, real estate, manufacturing, professional services, etc. It affected the demand by reducing the supply of money and constrained the availability of cash as a critical input for specific economic activities.

The most impacted areas were construction and manufacturing, the growth of the construction sector fell to 3.7 percent from 6 percent and the manufacturing growth 8.2 from 12.7 in the time periods.

On the other hand, there was a huge impact on the agriculture sector as well. The growth for the same went down to 5.2 percent from 6.9 percent. The impact turned out to be the massive increase in the price of seeds and fertilizers and the farmers are getting unable to handle these additional expenses. The real estate sector saw the money funding and transactions completely dead. The demands for lands and properties dropped very badly. The investment from foreign institutions decreased dramatically.

Even the digital payments schemes, promotions, discount offers could not ease the impact on the consumer durable markets.

The GST implementation has also made a huge difference and lead to the massive increase in the price of the basic items of a citizen, that made the demand and supply cut down pathetically. The stock market growth is declined by the reforms. On the other side, GST turned out to be a transparent method that avoids various other taxes and makes the consumers to pay a single tax, it reduces the tax burden between manufacturing and delivering services. It sometimes makes the products expensive though.

To conclude, it can be said that the cashless limit describes economies with well-developed financial markets and cash continues to serve an essential role in facilitating economic activity in modern India. Demonetization was implemented to avoid black money and corruption and it is much effective. The problems that decline GDP rate should be resolved and make the country economy people friendly.


Latin Manharlal Group