Demonetisation came to haunt Finance Ministry officials all over again with a section of the lawmakers choosing the subject to grill the executive while raising questions whether the move taken three years ago was the prime reason for the current slowdown. The subject came up for discussion at the meeting of Parliamentary Standing Committee on Finance last week. But what was meant as one-off mention soon became a full-blown issue with several members terming the move as bad for the economy.
At the meeting, the MPs also questioned senior Finance ministry officials on the likely revenue shortfall, lack of investment and lack of confidence in Indian economy.
Officials were asked to reason with the current poor economic growth and deceleration in all macro indicators, sources said. Some members asked the officials if the demonetisation step of three years back by the government is the reason behind the current slowdown, said sources.
Economic Affairs Secretary Atanu Chakraborty, Revenue Secretary A.B. Pandey, Finance Secretary Rajeev Kumar, Chief Economic Advisor K Subramanian were among those who attended the panel's meetings along with Central Board of Direct Taxes chief P.C. Mody.
On Monday, data showed factory output shrank 4.3 per cent, the lowest in almost 8 years highlighting the structural slowdown in the economy.
Economists and experts expect second-quarter growth - out on November 29 - may be lower than the six-year low of 5 per cent in the June quarter. The Reserve Bank of India (RBI) had said last month that growth may be marginally better at 5.3 per cent in the July-September period. The SBI said the growth could be 4.2 per cent in Q2 on low auto sales, and core sector growth.
Tax shortfalls are now imminent. Corporate tax collection has shown a growth of just 0.56 percent up to October as against a target of 15.4 percent for FY20. The budget has pegged the direct tax collections at Rs 13.35 lakh crore. Government expects close to Rs 2 lakh crore of tax shortfall this fiscal.
The poor economic situation and weak sales could pull down the overall direct tax collections by approximately Rs 1.2 lakh crore, inclusive of the hit on account of corporate tax reduction out of which around Rs 80,000 crore more is due to the new tax rate structure and the remaining on account of various direct taxes such as personal income tax collections shortfalls. These are not official public figures though, but estimates from the government on an analysis pointing to the dismal picture.
India's economic growth slumped to an over six-year low of 5 per cent in the first quarter ended June this fiscal due to slower consumer demand and private investment amid deteriorating global environment.
This has prompted many global agencies to cut India's GDP growth by various degrees for 2019-20.
The RBI, in October monetary policy review, had cut sharply its economic growth projection for the country for this fiscal to 6.1 per cent from 6.9 per cent earlier, expressing hope it will recover in the second half of 2019-20.
The government has recently announced a slew of measures, including a cut in corporate tax rate, capital infusion into public sector banks, setting up a Rs 25,000 crore fund to boost realty sector, among others, to boost the economy.
In a recent survey on the three years of demonetisation, economic slowdown was cited to be the most prominent negative impact of the sudden move by government.