Countries have had negative effects on GDP post GST Implementation


The financial decision of denomitisation made on 8 November 2016 had raised numerous questions regarding the effects it may have on GDP rate of India. Now the Government is fully engaged in implementing nationwide GST w.e.f. 1 July 2017. The activeness shown by the Government in the last month has left everyone amazed and also bewildered about the effects of GST.

The Finance Minister had introduced Central GST bills in Lok sabha this week and there was a 7 hour debate on the bills. Many members of the house raised crucial arguments on its effects on the GDP of India in short and the long run. It may be noted that experience earned from GST implementation in 5 countries in the last 20-25 years has taught that GST can have a negative impact on GDP growth and economic health in atleast the first two years.

The following are official figures of IMF:

Country GST Implementation Year GDP (One year before implementation) GDP (after GST implementation

Japan

1989

2%

1%

Canada

1991

1.75%

0.75%

Singapore

1994

5.6%

3%

Australia

2000

1%

1.75%

Malaysia

2015

1.75%

1%

It can be seen that each of the above countries observed heavy setback to GDP growth rate post GST implementation.

We all know that demonetization had badly hurt the business community and significantly reduced customer spending habits. Small retailers had complained that the sales were hurt by as much as 50%. Though the Modi Government is taking positive face in front of all the media and opposition, the above stats definitely point towards a difficult period ahead.