“Opportunity is missed by most people because it is dressed in overalls and looks like work. “
– Thomas A. Edison
There have been signs of desperation for Narendra Modi-led National Democratic Alliance (NDA) government as the country moves closer to the May 2019 Lok Sabha polls and desperation is becoming manifest at both political and economic levels. Then comes a good news. The Indian economy grew at a 15-quarter high of 8.2% in the April-June quarter of current fiscal on good show by manufacturing and farm sectors, according to government data released on Friday. The growth cemented India’s position as the fastest growing major economy, clocking higher expansion rate than China’s 6.7 in the same quarter. The gross domestic product (GDP) at constant (2011-12) prices in the first quarter of 2018-19 is estimated at ₹33.74 lakh crore, against ₹31.18 lakh crore in Q1 of 2017-18, showing a growth rate of 8.2%. It is a good news in the backdrop of last year’s scenario. Economic growth had dipped to 5.6% in the April to June 2017 quarter as companies reduced stocks ahead of the rollout of the goods and services tax (GST) in July last year. Consumer spending this quarter appeared robust, manufacturing showed buoyancy and construction activities surged. The mood of the Finance Minister is upbeat who inferred it as “an expansion of neo middle class”.
Modi’s self-trumpeted demonetisation lay in tatters. Its disastrous consequences for the economy are still unfolding. The stated aims of demonetisation were to combat black money and “rising incidence of fake currency notes.” The economy had grown just 5.6% in Q1 of 2017-18, owing to the lingering effects of demonetisation and the impending implementation of GST from July 1, 2017. Almost the entire amount of currency under the ‘note ban’ of November 7, 2016 has returned to the banking system, which invalidates all claims of seizing black money hoards under demonetisation. Though the Modi government claims otherwise, there is no denying that demonetisation failed to achieve the purpose for which it was clamped by the Prime Minister without adequate preparation, also turned to be the biggest failure of his government. For the RBI, the move (demonetization) complicated monetary management. For farmers and the informal sector, traditionally the most cash dependent, it piled on misery only. As far as fake currency issue is concerned RBI’s annual report shows, new currency notes are also being forged. On the top of it the demonetisation-induced cash crunch did increase digital payments but the years since, as cash returned, have seen more modest growth in digital payments.
Coming back to GDP, the spurt in growth in the past quarter, after eight quarters, marked by a rise in manufacturing and construction, may be because it comes off a low base last year. There seems to be a recovery underway. The key takeaway is that there is no substitute for relentless reforms which transform the economy by improving incentives. Despite several measures initiated by the government, the economy is now facing strong headwinds. The rupee has plunged below 70 to a dollar, making it one of the worst performing Asian currencies. The domestic market has to bear the cost of Rupee downturn or US$ upturn. Diesel and petrol prices are already moving up steadily, threatening to raise the inflation rate further in coming months. Despite the 8.2 % growth in GDP, the picture is not totally encouraging.