Government amends IT act to accept undeclared income with strict penalties
FITCH says demonetization will affect Indian economy
By TN Ashok / New Delhi
Indian Parliament lay paralysed for the 7th day today since demonetization as both houses were adjourned after noisy scenes with opposition including Congress, TMC, RJD and others demanding PM apologise for his remarks against them. They charged that the PM had accused them at a function earlier in the day of holding black money.
Congress, Trinamool Congress, SP, BSP and Left in the Rajya Sabha and the Lok Sabha, took strong objection to Modi’s comments this morning that “some people” are criticising demonetisation because “the government did not give any time to them to make any preparation (to convert black money into white).”
In the Rajya Sabha, as soon as the House met for the day and mourned the death of its former member Dipen Ghosh, BSP leader Mayawati was on her feet saying the Prime Minister had this morning “wrongly accused opposition of holding black money” and demanded that he should apologize for his remarks.
Leader of Opposition Ghulam Nabi Azad asked how Modi could allege when former Prime Minister Manmohan Singh and others clearly said opposition was against black money. Opposition said the PM was making allegations that opposition was against demonetization outside the house but did not have the courage to do so inside.
Lok Sabha speaker sumitra mahajan had to adjourn the house twice following noisy scenes with opposition members trooping into the well. The same scene prevailed in the rajya sabha which saw repeated adjournments.
The opposition has been demanding PM’s presence in the house besides admission of adjournment motions with voting to discuss demonetization with ruling party rejecting the same.
On day 16 of demonetization as government stopped exchange of old 500 and 1000 rupee notes across the counter at banks, the government hinted at introduction of amendments to IT act in parliament that would allow people still to deposit their unaccounted wealth with banks with the proviso of paying 50% of it as penalty and locking the funds for five years without being able to use it. This was reportedly decided at the cabinet meeting last evening.
Meanwhile reputed rating agency FITCH said demonetisation would have a negative impact on on India’s GDP growth in the short run but on the positive side it may improve the fiscal position.
Thomas Rookmaaker, Director in Fitch’s Asia-Pacific Sovereigns Group, said macroeconomic effects of cash crunch due to demonetisation include a temporary delay of consumption and investment, disrupted supply chains, farmers being unable to buy inputs, and some loss in productivity due to time lost to deal with cash issues, according to media reports quoting him.
“There are many elements to demonetisation, which make it difficult to quantify the impact on real GDP growth and explains the wide range of forecasts by different analysts “ , he was quoted as saying.
Fitch felt impact on GDP growth clearly depended to a large extent on how long the cash crunch is going to take to ease. A significant decline in growth number for this quarter is highly likely, but for the fiscal year as a whole the decline may still be relatively moderate.
Despite demonetisation, Fitch still expects India’s GDP growth to trend higher than China’s in the medium term. In India it expects GDP growth to accelerate in FY2018 on the back of reform implementation, monetary easing of the past year and infrastructure spending, while in China a continued increase in leverage in the broader economy is more and more becoming a burden for growth.
The rating agency said beyond the immediate policy issues of managing the cash crunch as best as possible and trying to mitigate the worst side-effects, it would be interesting to see what further steps the government will take to formalize the economy and structurally generate higher government revenues, media reports said.