“What you think is very clear, is not very clear,” told union finance minister Arun Jaitley to a reporter at a Delhi presser on Thursday called to take stock of Modi government’s 3-year performance. The reporter was asking about the impact of demonetisation on the GDP citing the sharp decline (6.1 percent) in the Jan-Mar quarter. Jaitley played down the impact of demonetisation saying it wasn’t the primary reason for economic slowdown.
“There are several factors that contribute to GDP. There was impact on growth on account of other factors, even before demonetisation. One particular factor you mention (demonetisation) (Sic),” said Jaitley defending the government’s high-disruptive move announced on 8 November. Though Jaitley is partly right, his argument is weak as from the Jan-Mar quarter numbers it is quite evident that demonetisation indeed left a great deal of pain on the economy. A sharp slowdown in the cash-dependent sectors such as construction, trade, hotels, financial services and real estate show this.
Except government spending and growth in agriculture, all other key components of GDP have showed a decline. Thus, Jaitley, at best, has dodged the question smartly on the impact of note ban on growth instead of responding with the facts.
But what is more interesting is part of Jaitley’s own admission that there was slowdown in the economy even before demonetisation on account of several factors. This directly contradicts the rationale of Prime Minister Narendra Modi when he said in Parliament in February this year that demonetisation was done since the economy was strong at that point. Modi used the analogy that an operation can be performed only in a healthy body.
“Since the economy was in strong condition, the timing of demonetisation was the best," Modi had said in Lok Sabha during his reply to the Motion of Thanks on President Pranab Mukherjee's address (read a report here). "When can you have an operation? When the body is healthy. The economy was doing well and thus our decision was taken at the right time,"Modi said. Now that Jaitley has admitted that economy was already facing slowdown on account of multiple factors even before demonetisation shock contradicts Modi’s logic.
But, Jaitley is absolutely right in saying a 7-8 percent growth is good enough for India in an environment where rest of the world is facing an economic slowdown. “I do believe in the current global situation, a 7-8 percent growth is a fairly reasonable,” the FM said. Further, when the impact of all pro-growth reform policies plays out, there will be certainly beneficial results in the economy, Jaitley said.
Certainly, Modi government’s three years in office has clearly managed to get the reform juggernaut moving by kicking off the reforms process with respect to Goods and Services Tax (GST), bankruptcy code, focus on large corporate loan defaulters and major drive to rationalise subsidies. Clearly, this government has fared far better than the UPA regime in terms of proactive approach to reforms and change in the way government offices function. Also, in the three years of Modi government rule, it has created a good image with no major corruption cases involving central ministers and the government has largely kept its promise on keeping to the reform process.
But the government needs to face the tricky challenges too and areas where it could not perform better. During the presser, Jaitley seemed to play down the talk of ‘jobless growth’ saying jobs can be created only within the economic structure. But, this government will be doing a mistake if it is undermining the problem of unemployment and act fast to create more job opportunities for millions of workers entering the country’s workforce every month.
Early this year, rating agency Crisil said that over 1.5 million people are entering the job market every month and the rapid adoption of automation which reduces the dependency on labour is only aggravating the situation. The unemployment rate in the country was 4.9 percent in 2013, 4.7 percent in 2012 and 3.8 percent in 2011. As for the scheduled castes, the unemployment rate was 3.1 percent in 2011, which has now risen to 5 percent. That means, while there has been a steady increase in the number of jobless people since 2011.
Similarly, setting the banking sector in order is a big task before the government. Else, this can paralyse the banking sector, limiting its ability to support the growth of the economy. Similar is the case of private investments. Though India has seen record FDI inflows in the 3-years, private participation on capital formation on ground has been rather poor and the cycle is yet to turn.
If India has to emerge as the manufacturing, economic powerhouse in the Asia, competing with China, it needs to grow much more than the 7 percent mark, create more jobs and facilitate investments. Jaitley would have done well acknowledging the impact of demonetisation on the economy and take corrective measures instead of being in denial mode. His admission that demonetisation was performed on the economy that was already fighting a slowdown directly contradicts the claim of his boss who said economy was doing well at that point and was ready for a surgery.
Updated Date: Jun 01, 2017 16:52 PM