The ghost of demonetisation has returned to haunt the Narendra Modi government once again, with the growth rate dipping to a two-year low in the last quarter of 2016-17. It is debatable whether this slowdown is because of slow global growth or due to the demonetisation of high-value currency notes and its chaotic impact. Finance minister Arun Jaitley attributes the slow growth largely to the global slowdown and falling exports and imports, though most economists say it is more due to demonetisation. It’s true that the move led to untold hardships to businesses that depend on cash transactions like construction labour, housing, agriculture, that according to one report account for one-third of all investments. It also led to a drop in household expenditure, more so in rural areas due to the cash crunch. The other reasons are the continuing slowdown in private sector investments as companies are highly leveraged, and still paying off their debts. There is also the issue of idle capacity with companies which has to be utilised. Banks also can’t lend liberally due to weak balance sheets.
The government is learnt to have recognised the situation and the Prime Minister is reportedly examining what can be done to get the economy back on the growth path. A solution will hopefully be found soon so that the cycle of investment and production can resume. Till then, the economy will largely depend on government spending on infrastructure and agricultural growth. With a good monsoon expected, this should give some relief in coming months. Another source of concern is the drop in manufacturing, as this is what creates jobs in large numbers. In the new-age digital economy, however, there is a change in the growth pattern. Automation and e-commerce are also to some extent contributing to this shift, though one view is that automation provides more jobs. China, meanwhile, has once again overtaken India as the world’s fastest-growing economy, at 6.9 per cent against India’s 6.1 per cent in the January-March quarter. One can only hope that this is a temporary hiccup, and that India will soon resume its pace of growth. A fact that is often forgotten is that India’s growth rate had been slowing down even before the demonetisation announcement in November last year, with the growth rate at 7.1 per cent against the earlier eight per cent. This is something the Congress never allows the Narendra Modi government to forget, specially as Mr Modi had pledged higher growth and more jobs during the 2014 campaign, neither of which has happened to the extent promised.
