What normal and non-partisan people expect has happened according to the latest Economic Survey. Prime Minister Narendra Modi opponents had forecast that the Indian economy will go into a tailspin because of demonetisation. Modi fans insisted that nothing will happen. The latest Economic Survey clearly indicates that something indeed has happened with the Indian economy. And there is just no way one can ignore the shock inflicted by demonetisation.
Compared to the original forecast of a 7.6 per cent GDP growth rate, the Survey now thinks that the GDP in fiscal 2016-17 will actually grow by just about 6.5 per cent. This is more in line with a recent IMF forecast that foresaw a similar decline in growth rate compared to earlier estimates. A full percentage point fall in GDP growth rate is plain simple bad news: no matter how you want to spin it. And remember, the agriculture sector is slated to grow at a very healthy 4.1 per cent this year thanks to better monsoons.
Clearly, the two other sectors of the economy have underperformed far more than originally estimated. The Chief Economic Advisor Arvind Subramanian admitted as much when he said: “Caution has to be exercised in analysing the impact of demonetisation. It is an unusual monetary experiment. No real model exist. It is an unusual experiment in the monetary history… The Economic Survey has realised the risk of the demonetisation to the country's economic growth and noted the recovery from the negative impact will require policy support from the government.”
The GDP forecast for 2017-18 is even more intriguing. According to the Survey, GDP growth rate in fiscal 18 will be anywhere between 6.75 per cent and 7.5 per cent. That is a very large margin by any yardstick. Shorn of jargon and rhetoric, it means that the Chief Economic Advisor Arvind Subramanian is not very sure of the longer term impact of demonetization. He insisted in front of journalists that the impact has been less than what cynics and critics were saying. But the very fact that GDP growth rate for the next fiscal is in a 6.75 per cent to 7.5 per cent band indicates that there is uncertainty. Given the quantum of uncertainty because of the standard errors are going to be very large. We should obsess less about what the exact growth number and focus more on what the growth drivers will be because if exports cease to be a growth driver, where will we get the growth from?, said Sajid Z Chenoy, Chief India Economist at JP Morgan soon after the Survey was released.
If is now more than clear that GDP growth rate will not cross 8 per cent when Finance Minsiter Arun Jaitley presents his fifth and final budget next year. Every available indicator shows that not enough jobs are being created: one of the reasons for the array of identity based agitations seen across India in recent times. For an overwhelming majority of Indians, “
ache din” means better jobs and livelihoods. If they don’t happen, what will happen to Narendra Modi when he seeks re-election in 2019? Even a school kid can answer that.
