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Part of what must be happening is private investment has been very weak. The question is, why is private investment weak? Part of the reason is probably the twin balance sheet problem, bad debts on the corporate balance sheets, as well as bad debts on bank balance sheets. And that needs to be cleaned up. We had also two other shocks. One was the demonetisation shop, which happened last year. And most recently, we've had the goods and services tax, which has been somewhat disruptive.
I think, in the long run, the goods and services tax reform will be very beneficial for the economy. But in the short run, as firms have anticipated it, it has been somewhat disruptive. Add these three elements together, I think you can explain some of what has been going on. The other factor I think one has to keep in mind is that part of the reason Indian growth was strong was commodity prices were falling. Those commodity prices have stopped falling, and that has, in a sense, not contributed any more to growth. So that's, perhaps, part of the reason also.
I think, as far as the GST goes, that should be a one- or two-quarter phenomenon. And you should see some recovery beyond that. As far as the effects of demonetisation, there might be some longer-term effects in the sense that the informal economy was affected, and that might prevent the informal economy from recovering as strongly-- also questions about how the sentiment among small and medium enterprises is affected by the demonetisation issue and the associated issues.
And that's a potential concern. But I think, the bigger problem for India today is really cleaning up the balance sheets of the corporates as well as the banks. And we need to do it very fast because these things tend to have persistent effects.
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I get a sense, certainly from the private investment, that whatever they may say, the sentiment is not strong enough for them to put bricks in the ground, or they're not investing. And that would suggest we need a certain amount of pickup for them to come back and which would then suggest a revival.
I've said in my book, the Reserve Bank was consulted. We were asked for our opinion, and our opinion was the costs of demonetisation would potentially outweigh the benefits. And our opinion was that-- that was our opinion. And then, it was up to the government to make a decision.
