Praising the Interim Budget 2019-20 for being pro-poor and fiscally prudent, Union Minister Arun Jaitley on Friday said demonetisation had to increase the growth rate of the economy unlike what the critics thought.
“The former Prime Minister’s statement that it will lead to a 2 per cent drop in the GDP captured the imagination of the government’s critics. Neither the original data for 2016-17 and 2017-18 nor the first revision proved that,” he wrote in a blog.
On Thursday, the government revised the Gross Domestic Product (GDP) growth rates by 110 basis points from 7.1 per cent to 8.2 per cent for 2016-17 (the demonetisation year) and by 50 basis points from 6.7 per cent to 7.2 per cent for fiscal 2017-18 as part of second revision and first revision, respectively.
Jaitley said there are no established models on the impact of demonetization on GDP. Earlier, the figures did not correctly capture GDP growth as India had a large parallel economy with lot of activities taking place outside the formal economy, he said.
“When demonetization led to depositing the entire cash into the banking system and led many future transactions to be more recordable, logically the GDP had to grow post-demonetisation… The present data conclusively establishes this,” he said.
This is further fortified by the high tax collections both in the direct and indirect taxes during 2016-17 and 2017-18, he said.
“Tax payments do not rise when the economy is not adequately expanding. Growth figures are based on estimates, tax collections are real,” he stressed and added the impact of demonetization could only be transient as the government always maintained.
Jaitley, undergoing medical treatment in the US, further rubbished the criticism of the government on the issue of lack of employment opportunities saying had that been the case there would have been a major social unrest.
The last five years have seen an average of about 7.5 per cent real GDP growth. If the inflation figure is added the nominal growth on an average will be between 11.5 and 12 per cent, he said in his Facebook blog post.
“Is it possible to conceive that such high nominal growth despite controlled inflation will not lead to any job creation. Several datas including the EPFO data have given a detailed indication of the job creation.
“If there is no job creation, as alleged, there should have logically been a great social unrest in the country. Past five years have passed off without a single major protest movement,” he said.
Jaitley said the government’s vision for India is to make it a five trillion dollar economy by middle of next decade and then target to double that size. With the present growth rates, India is on track to achieve this, he said.
“We are proud of our performance. Yet we are impatient. We wish to grow faster than even our present status of the world’s fastest growing economy so that we can cover up for the missed historical opportunities,” he said.
Jaitley said it involves a commitment to make sure that we work for every Indian and not just for the unduly privileged dynasties hinting at Congress’ Gandhi family. He said the poor were bluffed by attractive slogans which had no lasting value.
Recalling an observation by Nobel Laureate Gary Becker, he said poverty perpetuates not because poor are no less capable than the rich but because the poor can be habituated for making myopic choices because of the daily constraints that force them to always focus on survival.
“India’s poor only got the benefit of slogans in the past. Today they have seen resources being actually transferred to them. They are today all candidates who are aspiring to enter the neo-middle class,” he said.