Former Chief Economic Adviser (CEA) Arvind Subramanian on Sunday (December 10) said both demonetisation and implementation of Goods and Services Tax (GST) led to moderation of the Indian Economy.

He also spoke on a wide range of economic challenges emerging from India’s farm and banking sector, fearing that further disruptions could trigger an economic slowdown.

Speaking at the launch event of his book, Of Counsel: The Challenges of the Modi-Jaitley Economy’, he said the structure of GST implemented to eliminate cascading taxes could have been much better.

Arvind Subramanian said in his book that the budget estimate of revenue collection from GST seems to be unreasonable.

"To judge GST by what the budget demands of the GST, is unreasonable. I will say it frankly; the budget has made unreasonable demands on GST. It has asked for 16-17 per cent (increase)," he said.

The former CEA indicated that the design of GST has further scope for improvement and that there should not be more than three rates in the future. As of now, there are a total of four non-zero tax slabs: 5 per cent, 12 per cent, 18 per cent and 28 per cent.

Brace yourself’

Commenting on the economy, he said, We have to brace ourselves for a slowdown for some time. I say that for a combination of reasons. First of all, the financial system is under stress, financial conditions are very tight. This is not conducive for rapid growth.

He explained that the global economy has been suffering due to several factors and even the huge reforms (Demonetisation, GST) will not be able to perk it up at present.

For the combination of all these reasons I think we should brace ourselves for a period of slowdown. Then we have to see what policy actions are taken, how external environment changes, then we can think about real perk up in the economy," he said.

Excess reserves with RBI

The 59-year-old said also spoke on the recent disagreements between the Reserve Bank of India (RBI) and government.

While he agreed that the autonomy of RBI should not be undermined, he said excess reserves with the RBI should be utilised for the recapitalisation of public sector banks, not for funding the fiscal deficit of the government.

"First, it can only be used for recapitalisation of banks and recapitalisations of banks only happen when there are reforms in the banking system in place, which the government should initiate. So it can be a nice cooperative bargain with the RBI.

"Second, it cannot be a unilateral process; the RBI has to be a part of this. The government cannot do it alone. Third, any idea that this could be used to finance regular deficits or other expenditures, I would be totally against it. Because that would amount to a kind of raiding the RBI," he said. He also called for an Asset Quality Review (AQR) for NBFCs, which is one of the key reasons behind tensions between RBI and government.

On new back series GSD data, Subramanian said that the revised series has raised a lot of questions. "If you look at the other indicators during that period, you see a big difference between those indicators and the recent back-series. It demands an explanation."

(With inputs from PTI)