India no longer the world’s fastest growing economy
Arun Jaitley did not seem perturbed about the growth rate taking a plunge with India giving up the world’s fastest growing economy tag back to China, that grew 6.9% during the same quarter
Indian economic growth in the fourth quarter of 2016-17 (January-March) coming down to 6.1% from the 7% in the previous quarter, according to the data released by the Central Statistical Office (CSO) indicates that the demonetisation decision has indeed adversely affected our economy. Almost all the key growth drivers, from agriculture, manufacturing and mining sectors to construction and private investment have seen significant drops.
Not many were surprised when noted economists from Amartya Sen to Raghuram Rajan and Larry Summers to Paul Krugman frowned at Prime Minister Narendra Modi’s shock decision on November 8 last year, to demonetise the 1,000 and 500 rupee notes, taking out almost 86%, in value terms of the Indian currency in circulation. Noted development economist Jean Dreze had then warned, “Demonetisation in a booming economy is like shooting at the tyres of a racing car.”
Eminent economists in the Opposition ranks, like former Prime Minister Manmohan Singh and former Finance Minister P Chidambaram had also warned about the poorly planned and executed decision causing a possible decline in the country’s GDP, with even a 1% fall leading to a loss of ₹1.5 lakh crore along with the loss of countless number of jobs.
Despite the warnings and the criticism, the Prime Minister and the Finance minister repeatedly asserted that the note ban would cause no harmful impact on our economy, claims that are suddenly very hard to back up, with our growth dropping to a two-year low, and with India giving up the world’s fastest growing economy tag back to China, that grew 6.9% during the same quarter.
One also should keep in mind that the current administration soon after taking charge had changed the base year for calculating national accounts to 2011-12 from 2004-05, in addition to the routine annual revision – an alteration exercise that had caused a significant revision of 4.7% GDP growth in 2013-14 to a relatively high 6.9%, making the current figure pale in comparison to any of the 10 years of the previous UPA governments.
The fourth quarter also witnessed a significant increase in government spending, of almost 17%, in the defence and public administration sectors, without which the growth numbers would look even more unimpressive. We are yet to see a proper appraisal of the effects the demonetisation exercise had on jobs, even though bodies like the All India Manufacturers’ Organisation (AIMO) had predicted mass job losses, especially for micro and small-scale industries.
The government, which very recently completed three years—on May 26, is facing the dual challenges of falling growth numbers and increasing unemployment rates. While almost 1.5 crore people enter our job market annually, employment generation in the eight labor-intensive sectors, according to our Labour Bureau, was a meagre 1,35,000 in 2015.
The order on ‘cattle’ slaughter, just a few days before the release of the new economic data, hardly seems surprising, considering that nationalist, cultural and religious rhetoric have been time-tested means of under-performing governments across the globe to divert attention of the masses away from pressing and pertinent economic issues.
Anil is a Technology Evangelist, Venture Architect and a Social Entrepreneur Tweets @anilkantony