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India’s controversial withdrawal of high value banknotes late last year has had an “adverse impact” on the economy, the government has admitted. The country’s Economic Survey, released on the eve of the national budget, said the measures had slowed growth. The dramatic move to scrap 500 ($7.60) and 1,000 rupee notes was intended to crack down on corruption and so-called black money or illegal cash holdings.

But it also led to a cash shortage, hurting individuals and businesses. The report forecast that India’s economy would grow 6.5% in the year to March 2017, down from 7.6% the previous financial year.

But it also stressed that the estimate was based “mainly” on data from before the note withdrawal kicked in causing some to suspect growth may be lower still.

India’s Finance minister Arun Jaitley who delivered the Union budget in Delhi on Wednesday, said he expected the economy to “revert to normal” from March onwards after supplies of cash in the economy were replenished.

Prime Minister Narendra Modi announced the socalled “demonetisation” policy on November 8 last year. Within hours the two notes were no longer accepted as legal tender taking the equivalent of about 86% of India’s cash supplies out of circulation and sparking scenes of chaos outside banks and cash machines.

Low-income Indians, traders and ordinary savers who rely on the cash economy were badly hit, with hordes thronging banks to deposit expired money and withdraw lower denominations.

“Growth slowed as demonetisation reduced demand … and increased uncertainty,” he added, saying negative impacts included including job losses and falling income for farmers.

However the report said the scheme could be “beneficial in the longrun” if corruption fell and there were fewer cash transactions -many of which are done to dodge taxes.

The government has previously said the move was a success with the banks flush with cash and significant increases in tax collection.

“It’s very nice to understand that the survey is acknowledging the negative impact,” said Aneesh Srivatava, chief investment officer at IDBI Federal.

“This is perhaps the first acknowledgement coming from the government. Otherwise so far there has been a denial.” Deadlines for spending the notes or swapping them for new currency have already passed. Some people, including those of Indian origin living abroad, will be able to exchange the notes in branches of India’s central bank until 31 March 2017 -but the process will be more complicated than going to a regular bank.

The demonetisation drive has affected the Indian growth
The demonetisation drive has affected the Indian growth

In the meantime, the world media has reacted to the budget. We look at what some of them said about Indian budget:

The New York Times: Trying to spur an Indian economy hard hit by its cash shortage, the government of Prime Minister Narendra Modi unveiled plans on Wednesday for next year’s budget that would significantly increase spending on infrastructure, rural areas and antipoverty programs.

BBC: Arun Jaitley had to do a balancing act between the need to stimulate India’s growth and ensuring that the country’s spending is under control.

The Wall Street Journal: India’s Finance Minister Arun Jaitley managed a fine balancing act in his budget announcement Wednesday, increasing spending to stimulate growth while at the same time ensuring the government’s financial health isn’t weakened. Investors reacted positively to his announcements, as the benchmark stock index climbed as much as 1.8% after he presented the budget to Parliament. Measures to boost a variety of sectors and strengthen the government’s efforts to fight corruption were unveiled. The focus, however, was on the country’s villages and small towns where job losses and hardships due to a cash shortage caused by the sudden withdrawal of 86% of currency have been felt the most.

The Guardian: Cash donations to Indian political parties will be capped at 2,000 rupees (£23.50), with larger donations able to be made by “electoral bonds” under landmark funding reforms announced by the government. The changes were proposed by the finance minister, Arun Jaitley, while unveiling his first national budget since November’s shock decision to invalidate India’s two highest-value bank notes.

Deutsche Welle: Months after India’s PM Narendra Modi shocked the nation with an abrupt highvalue bank note ban, hitting the country’s economic growth, the government has announced a plethora of sops to ease the pain.

Gulf Times: India aims to accelerate its growth and the budget has given emphasis to this by increasing investment in infrastructure, bringing fiscal discipline and keeping inflation under control. The budget has laid out strong emphasis to revive the growth in rural economy, which in turn will be reflected in the overall GDP. The budget has taken measures for reviving the capital expenditure in order to kickstart the investment cycle, On the whole, the steps taken by the budget will revive the GDP growth of Indian economy.

The Seattle Times: India’s finance minister pledged relief for middle class taxpayers and small and medium-sized companies on Wednesday, saying the government would spend billions of dollars to double farmers’ incomes, upgrade ram-shackle infrastructure and provide cheap housing.

CNBC: While opinions vary on how long the disruptions caused by Modi’s crackdown on untaxed and illicit wealth will last, there is near unanimity among economists that Asia’s thirdlargest economy needs a helping hand… The rollout of a nationwide Goods and Services tax (GST), expected in July after years of delays, could also weigh on economic growth. Countries that have introduced GST in the past have often faced a relative economic slowdown before the benefits of a unified tax regime feed through.

TAX COLLECTION AND REVENUE IN BUDGET 2017

  • GST implementation to bring more taxes to Centre and states
  • No transaction above Rs 3 lakh in cash will be allowed as suggested by SIT
  • Customs duty on LNG to be reduced from 5 pc to 2.5 pc
  • To make MSME companies more viable, govt proposes to reduce IT tax with annual turn over of Rs 50 core up to 25 per cent
  • I-T for smaller cos with turnover of upto Rs 50 cr up to 25 per cent
  • Not possible to remove MAT levied on advance tax for now; carry forward allowed for 15 yrs instead of 10 yrs
  • Relaxation in norms for Start Ups for getting tax exemption
  • Capital gains tax exempted for the land pooled to build new capital of Andhra Pradesh effective from 2.6.2014
  • Increase in personal tax collections is 34.8 per cent in last three quarters. Demonetisation has played a role
  • 17 pc growth in direct tax revenue for the second year in a row in 2016-17
  • As against 4.2 crore people working in organised sector, only 1.74 crore individuals filed income tax returns
  • Solar tempered glass used for manufacture of solar cells/panels exempted from customs duty
  • Import duty on aluminium ores and concentrates raised to 30 pc from nil presently
  • Actual revenue loss on tax proposals Rs 22,700 cr; gain from additional resource mobilisation is Rs 2,700 cr
  • Net revenue loss from direct tax proposals to be about Rs 20,000 cr
  • Excise duty on pan masala containing tobacco (Gutkha) raised to 12 pc from 10 pc
  • Excise duty on non-filter cigarettes of length not exceeding 65 mm raised to Rs 311 per thousand from Rs 215 per thousand