Arvind Subramanian presented Chief Economic Survey today which included analysis of notes ban.
New Delhi:
Prime Minister Narendra Modi has said that his shock decision in November to scrap 86 per cent of the cash in circulation aims at exposing untaxed wealth and the proceeds of crime and corruption. Today, Chief Economic Advisor Arvind Subramanian added that "the aim of demonetisation, is in fact, to bring down real estate prices," a remark that spawned much lampooning on Twitter.
The PM has said while defending his notes ban that he will also enforce a clean-up of the real estate sector, widely acknowledged as the landing place for vast amounts of black money. "Real estate on the other hand, you do see a dip in prices, in sales, in launches and of course, some of it may be adverse of the economy, but in the long run, some of that is also good, because in equilibrium, the aim of demonetisation, is in fact, to bring down real estate prices," said Mr Subramanian today.
As the top Finance Ministry economist, he rejected independent estimates while stating that India's growth rate will slow by up to half a percentage point due to the government's decision to abruptly ban high-denomination notes. The International Monetary Fund, where he used to work, has said growth would be knocked a full percentage point lower by the demonetisation drive.
The notes ban will also complicate the fiscal arithmetic in Finance Minister Arun Jaitley's fourth annual Budget, which will be presented to parliament tomorrow morning.
Presenting the pre-Budget Economic Survey, which combines analysis and forecasts with a broader look at policy issues, Mr Subramanian called demonetisation a "radical currency-cum-governance-cum social-engineering measure". He also maintained the currency squeeze was "less severe than is commonly perceived".
However, Mr Subramanian acknowledged that official GDP figures may not fully reflect the "real and significant hardships" experienced by the informal sector, in which an estimated nine out of 10 Indian workers are employed. Without giving a figure for growth in the fiscal year that ends in March, Mr Subramanian said it was likely to be between one- quarter and one-half percentage point below an earlier official forecast of around 7 percent.
Growth is expected to "return to normal" in 2017-18, when it is forecast in a 6.75-7.5 percent range, as cash liquidity is restored to the economy by the end of March, according to the 335-page report.
When the IMF slashed its India growth forecast for the current fiscal year by a full point to 6.6 percent, it handed the title of the world's fastest-growing economy back to China.
Despite his cautious assessment, private sector economists said it was important he at least recognised that demonetisation had taken a toll on the Indian economy. "This is perhaps the first acknowledgement coming from the government. Otherwise so far there has been a denial," said Aneesh Srivastava, chief investment office at IDBI Federal Life Insurance Co in Mumbai.
The Finance Minister is expected in the Budget to offer some tax "sops" to individuals to ease the pain of demonetisation, and ramp up public sector investment to offset weak consumption and private capital investment.
Senior officials say Mr Jaitley may allow the deficit to overshoot an earlier target of 3 percent of GDP to create room for more public investment - a move against that ratings agencies such as Standard & Poor's have warned against because of India's high national debt.
Mr Subramanian took a poke at the "poor standards" of the ratings agencies.
The PM has said while defending his notes ban that he will also enforce a clean-up of the real estate sector, widely acknowledged as the landing place for vast amounts of black money. "Real estate on the other hand, you do see a dip in prices, in sales, in launches and of course, some of it may be adverse of the economy, but in the long run, some of that is also good, because in equilibrium, the aim of demonetisation, is in fact, to bring down real estate prices," said Mr Subramanian today.
As the top Finance Ministry economist, he rejected independent estimates while stating that India's growth rate will slow by up to half a percentage point due to the government's decision to abruptly ban high-denomination notes. The International Monetary Fund, where he used to work, has said growth would be knocked a full percentage point lower by the demonetisation drive.
The notes ban will also complicate the fiscal arithmetic in Finance Minister Arun Jaitley's fourth annual Budget, which will be presented to parliament tomorrow morning.
Presenting the pre-Budget Economic Survey, which combines analysis and forecasts with a broader look at policy issues, Mr Subramanian called demonetisation a "radical currency-cum-governance-cum social-engineering measure". He also maintained the currency squeeze was "less severe than is commonly perceived".
However, Mr Subramanian acknowledged that official GDP figures may not fully reflect the "real and significant hardships" experienced by the informal sector, in which an estimated nine out of 10 Indian workers are employed. Without giving a figure for growth in the fiscal year that ends in March, Mr Subramanian said it was likely to be between one- quarter and one-half percentage point below an earlier official forecast of around 7 percent.
Growth is expected to "return to normal" in 2017-18, when it is forecast in a 6.75-7.5 percent range, as cash liquidity is restored to the economy by the end of March, according to the 335-page report.
When the IMF slashed its India growth forecast for the current fiscal year by a full point to 6.6 percent, it handed the title of the world's fastest-growing economy back to China.
Despite his cautious assessment, private sector economists said it was important he at least recognised that demonetisation had taken a toll on the Indian economy. "This is perhaps the first acknowledgement coming from the government. Otherwise so far there has been a denial," said Aneesh Srivastava, chief investment office at IDBI Federal Life Insurance Co in Mumbai.
The Finance Minister is expected in the Budget to offer some tax "sops" to individuals to ease the pain of demonetisation, and ramp up public sector investment to offset weak consumption and private capital investment.
Senior officials say Mr Jaitley may allow the deficit to overshoot an earlier target of 3 percent of GDP to create room for more public investment - a move against that ratings agencies such as Standard & Poor's have warned against because of India's high national debt.
Mr Subramanian took a poke at the "poor standards" of the ratings agencies.
Track Latest News Live on NDTV.com and get news updates from India and around the world
