The news that the Indian economy has slowed down to 6.1% in the March quarter -- its lowest in two years-- should really come at no surprise. The slowdown in growth, which has taken the government by surprise, is being blamed on the surfacing effects of last autumn’s decision by the Prime Minister Narendra to declare around 86% of the country’s hard cash as ‘mere paper’. As a consequence, India has lost the tag of being the fastest growing economy, and the slowdown is believed to be driven by a poor performance in manufacturing and service sectors. Not one to give up easily, the government has continued to deny this that demonetisation is to blame.
Finance Minister Arun Jaitley instead blamed global economic factors as well as banks’ debt burdens. The country’s statistics office, which released the figures, has on the other hand blamed weaker expansion in manufacturing, agriculture and construction. One can reasonably draw links between the slowdown in the three sectors and demonetisation.
While other countries may yet envy India’s growth, growing as we are at above six per cent, when put in the context that this growth is the lowest in three years, serves only to implicate the government. Coming as they do at a time when the Modi government is celebrating three years in power, the figures put the government in a quandary. It is no more a secret, that the Prime Minister’s demonetisation was a political decision rather than an economic one. The benefit of hindsight makes it evident that the decision’s ‘unstated’ objective was to project the Prime Minister as a decisive leader unafraid of his enemies and of black money hoarders ahead of the elections in UP and that was achieved with much success. But it has come as a huge cost, and a completely avoidable one, especially since one considers that the economy was cruising along. The latest growth figures are only vindication of the stand taken by several learned economists most famously by former Prime Minister Manmohan Singh. Given that we only have official figures at our disposal, the hit to the economy could be far worse than is being publicly conceded. Denial may not help, but asking a government to publicly admit that they made a wrong call, may be asking for too much.
Demonetisation cannot be undone, and it is yet unclear, whether the ruling party will be made to pay for its sins, but one hopes that internally the government can diagnose the problem accurately and take corrective measures, if not publicly. The only saving grace is the fact that GST rollout offers hope for a smoother economy.
