Demonetisation isn’t GDP growth’s death-knell
Making a rare intervention in the Rajya Sabha on Thursday, former Prime Minister Manmohan Singh claimed that the Modi Government's demonetisation decision could set back the country's GDP growth by two percentage points. He was adding to recent speculation that the economic disruption as a result of the demonetisation drive would have serious consequences for the nation's economy. The former Prime Minister had, of course, indulged in back-of-the-envelope calculations — the best one can do in the given circumstances and arrive at conclusions that suit a pre-determined position. But the apprehension of a significant dip in GDP growth is as wild in its guess as it is motivated. For instance, brokerage firm Ambit Capital has virtually sounded the death-knell for India's economy, estimating 2017 financial year growth at a mere 3.5 per cent, and that of 2018 at 5.8 per cent. But banking conglomerate HSBC has said that the impact would be far less: For the six months of the current fiscal it would fall by 0.5 per cent — down from 6.4 per cent in the previous six months. It is difficult to accept, even after making room for the worst-case scenario, how a country with a large domestic market and strong economic linkages, chugging along at a seven per cent GDP growth, will suddenly, within a few months, see its growth halved. True, economic disasters strike suddenly, as it happened in the US in 2008, but the indicators are there much beforehand for all to see. In the present case, no such hint is at hand. All that the critics of the Narendra Modi-led Government are doing is to to concoct situations that can cause alarm and derail the Government's anti-black money, anti-corruption, and anti-counterfeit drive. Also, those are willing to give credence to alarmist reports about the country's GDP growth in the coming years, need to note the endorsement from the International Monetary Fund (IMF). As the world's prime lending agency, its opinion matters. The IMF has backed the demonetisation decision as a good move and said the Government must now ensure that “currency transactions” are “managed prudently to minimise possible disruptions”.
Global world leaders like Bill Gates too have supported the demonetisation drive. In any case, even if one accepts for argument's sake, that the nation's GDP growth will witness a setback in the coming months, isn't it better to manage with a lower GDP growth for some months even as the parallel economy is being cleaned upIJ Should we be so fixated with a high GDP growth that is driven to a significant extent by the black money economyIJ To accept the latter premise is akin to endorsing a Chief Minister's recent remark that black money had come to the country's aid during financial crises in the past!
Nobody is denying that the Government's decision, which came into effect from the midnight of November 8, has led to many inconveniences to millions of ordinary customers across the country. Given the secrecy attached to the move, a system to adequately cater to the problems that erupted in the aftermath of the decision, could not be put in place. But now, the authorities have begun to move fast, and there are signs that the situation is easing on the ground.