Doctor's Diagnosis Was Dead Right
- Demonetisation Drives GDP Drastically Down

Raman Swamy

Dr. Manmohan Singh was right after all.  Demonetisation has dragged down India’s economic growth to 6.1 per cent in the January to March quarter. 

This is lowest GDP rate in two years.  It also means that India has lost its status as the “world’s fastest growing economy”-- China’s growth during the same three-month period was 6.9 per cent.

In his speech in the Rajya Sabha on November 24, just two weeks after demonetisation came into effect, the former Prime Minister had said:  “My own feeling is that the national income, that is the GDP, can decline by about 2 per cent as a result of what has been done. This is an underestimate, not an overestimate”. 

He was mocked. He was criticised. He was labelled a “failed economist”.  Even Narendra Modi was scornful of his knowledge and even his integrity - “The art of taking a bath wearing a raincoat in the bathroom can be learnt from Manmohan Singhji”. 

But now the official figures have finally been announced.  On Wednesday evening the government released the provisional GDP data for the Fourth Quarter of 2016-17 as well as for the whole financial year.

The numbers are weak. The official release says:  "GDP at constant (2011-12) prices in Q4 of 2016-17 is estimated at Rs 32.28 lakh crore, showing a growth rate of 6.1 percent".  It adds:  “GVA (growth minus taxes) shows a growth of 5.6 percent”.

Even this is an attempt to camouflage the real extent of the decline.  For an unusually long time the Central Statistical Organisation had been keeping the figures for the Third Quarter a closely guarded secret.  Whatever data it made public was only for the first half of 2016-17.  The post-demonetisation period – October to December – was deliberately not factored in, on the plea that data was still in the process of being collected and calculated. 

Meanwhile, the Finance Ministry suddenly changed the Base Year for calculation of industrial production index and wholesale price index -  from 2004-05 to 2011-12. 

This was clearly aimed at making the Modi years look a little better.  As everybody knows, the Indian economy was doing remarkably well in the last year of the Vajpayee regime and during UPA-1, right up to 2008 when the global financial meltdown came like a bolt from the blue. 

Manmohan Singh’s stimulus packages kept India afloat at a time when the most of the advanced and emerging countries reeled under severe recession.  Even in 2010-11 GDP was above 8 per cent.  This declined to 6.2 in 2011-12 before falling even further in the last two years of UPA-2.

In other words, it suited the Modi government to keep 2011-12 as the new Base Year.  Because India’s economic fundamentals are considered to be basically sound, the economy started moving on the recovery path, and the first two years of the NDA government saw growth of 7.4 per cent and 7.9 per cent. 

The growth momentum carried on in the first half of Year Three under Modi.  Then came the disastrous decision of November 8, 2016.  A healthy economy was hit with a body blow from which it has still not recovered. 

Nobody will probably ever know why Narendra Modi did what he did.  None of the reasons or excuses given at that fateful hour can pass the test of rationality.

Six months down the line, there is no sign of even a single one of the grand objectives having been fulfilled –  the black economy is still booming,  IT raids are still uncovering huge caches of unaccounted wealth, counterfeit currency rackets are still thriving, hawala operators are happily doing business as usual,  the majority of citizens are still relying on cash transactions, cashless economy is still a far cry,  and above all terrorists are killing more soldiers and civilians than they ever did.   

All that the demonetisation bombshell succeeded in doing was to turn owners of companies like PayTM into billionaires overnight and to flood banks with staggering volumes of cash deposits that interest payments are now becoming a the new non-performing assets.  Apart from that, the other achievement of the “brain fade” exercise of note-bandi was to kill the livelihood of crores of self-employed Indian citizens in the vast informal sector of the economy. 

Now there is statistical evidence that demonetisation has had a devastating impact even on the formal economy. This is clearly visible in the fourth quarter GVA growth in various sectors -  Manufacturing declined to 5.3% from 8.2%. Hotels, Transport and Communication and Services declined to 6.5% from 8.3%. Financial, real estate and professional services grew at a pathetic 2.2 percent. 

The Q4 growth rate of 6.1 per cent was also the lowest as compared to earlier in the year -  7.2 percent in First Quarter and 7.4 percent in Second Quarter.

The government’s Chief Statistician TCA Anant came out with a classic understatement -- "The Q4 GDP number”, he said, “was a bit disappointing”.   Then he came out with a dire forecast:  “Since listed companies have reported a slowdown in their earnings for Q3 and Q4, I expect the data to be revised further downwards”.

Dr. Manmohan Singh was more accurate than even he could have imagined when he said:  “The demonetisation drive is a monumental mismanagement failure."

He also said in the same speech:  "This will hurt agriculture, small industry and everyone in the unorganised sector." 

And also, "I want to ask PM if he can name any country where people have deposited their money but are not able to withdraw it?  This alone, I think, is enough to condemn what has been done in the name of greater good of the people of the country”.

Frontier
Jun 9, 2017