The latest Whatsapp joke floating around is “GST has reached number 3 in the list of things that one cannot understand with number 2 & 1 being Duckworth Lewis and Spouse Mood respectively”. GST is set to roll out on the 1st of July and while rates of most items have been fixed, there is very little clarity on implementation.
Many businesses are putting off expansion till clarity on gst implementation emerges and this will happen only when it is implemented and given a few months to work. Until then, businesses will be in the dark and may not want to both expand or even up production levels. In fact many manufacturers are destocking inventories before the gst regime begins, offering discounts and depressing prices. This destocking can reflect on lower margins in the 1st quarter 2017-18 corporate results.
GST can in fact have a short term negative impact on economic growth. This coupled with sharp fall in prices of farm produce and farm loan waivers by state governments can have a higher negative impact on GDP than expected.
Prices of fruits, vegetables and pulses have fallen sharply leading to farming becoming uneconomical. Farmers have been protesting across states and this has led to farm loan waivers by government’s of UP, Punjab and Maharashtra and this will be followed by other states.
Rural income will be affected sharply on farmer’s economic woes and with granaries full due to record foodgrain production last year, procurement is slow and MSP (Minimum Support Price) is being lowered. Farm loan waivers are negative for banks as they will be reluctant lenders to the farm sector.
The Modi government will be hard pressed to push up agricultural growth and this could have a cascading effect on consumption and investment, leading to a drop in overall economic growth.