The year 2017 could well be a 'make or break year' for the NDA government, depending on how it manages to utilise the likely gains of Rs 2.20 lakh crore on account of demonetisation to spur economic growth to over 8%, say experts.
The government needs to cut corporate tax, clean up bank balance sheets, and pump in more money into infrastructure if it wants to propel India to 8% growth trajectory, they said.
"2017-18 could be a make or break year for the government and all will depend on the success of demonetisation drive. If black economy can be converted to white, then interest rates would come down in long run and push India to a 8-8.5 per cent growth trajectory," KPMG (India) Partner & Head of Tax Girish Vanvari said.
EY India Chief Policy Advisor DK Srivastava said the economy was passing through a phase of investment slowdown, and the demonetisation drive has also led to consumption slowdown.
"The authorities are aware of this and they might come up with a fiscal stimulus programme for next fiscal. Government will get additional room for spending as extra resources to the tune of 1.5 per cent of GDP, or Rs 2.2 lakh crore, garnered by dealing with old money and tax collection from unaccounted deposits would be enough to stimulate the economy," Srivastava said.
The stimulus can come in the form of additional spending in road, railways, and other construction sector which will have a multiplier effect on jobs, he added.
Listing three major challenges that need to be watched, experts said the effects of demonetisation could last till March-end before it stabilises. Besides, global developments and GST rollout would also be keenly watched.
"It would be hugely positive if reform agenda is pursued with reduction in corporate tax rate, digital penetration, NPA cleaning and investing the money garnered from black money for infrastructure. If black money comes into the system, then interest rates would come down and push growth to 8-8.5%," Vanvari said.
Srivastava said that with large amount of money coming in, the government may look at lowering corporate tax rate and bring it in line with those prevailing in the US and UK and thereby prevent flight of capital. It could also raise the I-T exemption limit to Rs 3 lakh in the upcoming Budget to give more disposable money in the hands of people.
"I expect the Indian economy to grow 7% in current fiscal and further to 7.4% next fiscal. Only after the adjustments with regard to demonetisation, GST roll out and shifting the fiscal year is over and settled, we could see India achieving the 8% growth potential in about two years time," he said.
Relentless implementation of the policies shall go a long way in achieving the true growth potential of India, Nangia & Co Managing Partner, Rakesh Nangia said.
"Sluggish world economy may keep crude oil and commodity prices low, but a good monsoon and growth in domestic demand shall keep India's GDP high," he said.