GST, demonetisation shock to last two more years, says Reddy

Growth levels of 7.5-8% unlikely in next 24 months’

Refusing to hazard a guess on GDP growth in the short-term given the “shocks” such as the Goods and Services Tax, demonetisation and the mountain of bad loans, former Reserve Bank Governor Y.V. Reddy said the economy needed two more years to “consolidate” and claw back to higher growth levels.

It was difficult to make a forecast on growth now or say when the economy would return to the potential growth levels of say, 7.5-8%, which is unlikely in the next 24 months, he said.

“In a shock, the negative element is front-loaded. There will be some moderation, and there can be some gains. The pain is there now, the gains will come later. How much gain and in what gap, are the issues,” Mr. Reddy told reporters.

Mr. Reddy said the economy was helped by a positive shock for almost three years following the massive drop in crude price, which he said was at a third of what it was during his governorship.

However, negative shocks such as the implementation of the GST, demonetisation of currency notes last November and also the high quantum of non-performing assets of banks have hurt the growth rate, Mr. Reddy said.

Reckless lending in the high-growth years during the previous government and certain developments in the telecom, power and coal sectors following graft charges created a lot of stress in the corporate world and left many of them over-leveraged.


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