Severe drought and unexpected note ban ' title=' note ban '>note ban by the Centre affected Karnataka's Gross State Domestic Product (GSDP) for fiscal 2016-17, Chief Minister Siddaramaiah told the assembly on Wednesday.

"We are facing an adverse situation due to slump in economic activities in the wake of drought for two years and November 8 demonetisation," he told the lawmakers here.

Presenting the 2017-18 Budget, Siddarmaiah said the GSDP declined to 6.9 per cent in fiscal 2016-17 from 7.3 per cent in fiscal 2015-16, as farm sector grew 1.5 per cent, industry 2.2 per cent as against 4.9 per cent and services 8.5 per cent as against 10.4 per cent a year ago.

"Demonetisation of high-value notes (Rs 500 and Rs 1,000) caused huge distress to the people but the Union government is yet to disclose what has been achieved by it. The cooperative sector serving farmers and rural folk came to a standstill," the Chief Minister said.

Claiming the note ban betrayed lack of preparedness as the banking system was not geared up to handle it, Siddaramaiah said the goals posts were changed midway and the rules were repeatedly modified.
 

"While the need for demonetisation is debatable, I think that the Union government and the Reserve Bank of India (RBI) could have foreseen the exigencies and put in robust systems in place to insulate the common man from the severe hardships," Siddaramaiah said.

With the Goods and Services Tax (GST) system proposed to be introduced from July 1, the Chief Minister refrained from making any major change in the rate structure.

Siddaramaiah, who presented his 12th budget in a row as Finance Minister and fourth as Chief Minister, however, increased by 6 per cent Additional Excise Duty (AED) on the fifth and 11th slabs and 10 per cent and 16 per cent AED on the remaining 15 slabs.

"As a measure of rationalisation, Value Added Tax (VAT) on liquor, including beer, fenny, liqueur and wine will be removed with effect from April 1. The administrative fee of Rs 2 per litre on export and Re 1 per litre on spirit, excluding ethanol, will be withdrawn," said the Chief Minister.

Federation of Karnataka Chamber of Commerce and Industry tax expert B.T. Monohar clarified that consumers who drink liquor in bars, restaurants or pubs would benefit from the VAT withdrawal as it was applicable when served and not when bought from shops and distributors.