Economic Survey: Long-term damage from demonetisation is minimal

The Economic Survey, tabled in Parliament by Union Finance Minister Arun Jaitley on Tuesday, asserts that the GDP for 2016-17 will range between 6.75% and 7.1%; India will soon be back to being the fastest growing economy.. This flies in the face of pessimistic assessments by some quarters that India's GDP has gone into reverse gear after demonetisation. This assessment implies that the negative and slowing impact engendered by the structural adjustment of demonetisation will not cast any shadow beyond the first two quarters of 2017-18. And also that India will resume being clear and above the fastest growing economy in the world in 2017-2018. This, aided partially by the positive effects of demonetisation, the world’s biggest digitalisation exercise, and a surge in cashless transactions. Notably, agriculture is to grow at 4.1% in 2016-17, up from 1.2% in 2015-2016. This is particularly commendable because much was made of how badly demonetisation had affected this vital sector. Even the service sector, said to have been severely impacted by a global slowdown in demand for its wares, is projected to grow at 8.1%. The Economic Survey, prepared under the auspices of Chief Economic Adviser Arvind Subramanian, was presented after the President’s Address. The President laid out a long list of the Government’s accomplishments over the last year in a thoroughly upbeat manner. He covered the implementation of One Rank One Pension (OROP), the ‘surgical strike’ across the Line of Control  (LoC) with Pakistan, and the positive effects of demonetisation, amongst very many other issues such as electrification, green  energy, etc. However, the President’s address coincided with news of the US introducing an H1B Visa Bill in the Congress, resulting in jitters in India’s listed IT industry stocks, even though the road to the legislation being actually passed is generally a long-winded one. The Congress, spearheaded by former Finance Minister P Chidambaram and former Prime Minister Manmohan Singh, aired its own ‘Real State of the Economy 2017’  document at a press conference on January 30, a day before Parliament convened for the  Budget Session. Predictably, it asserted that the economy was in much worse shape than the Government would have the people believe. It said the GDP figure was projected to plummet to the IMF forecast number of 6.6% -- down from the erstwhile 7.6% reckoned prior to demonetisation. Chidambaram lamented the low credit growth, which he said was at 5%, characterising it as the "lowest in decades". "Where are the jobs", asked the Congress. "Where is the new capital investment?" However, the economy is actually in a fairly good shape. Inflation is down with the Wholesale Price Index (WPI) averaging at 2.9%. Core inflation is stable at under 5%. The Current Account Deficit (CAD) has narrowed to 0.3%. These figures clearly indicate that the state of the economy is considerably better than when the Modi Government came to power after 10 years of UPA rule. The GDP was at just 4.74% in 2013-14, for example. By way of a new idea, the Economic Survey suggested that a new body should be set up to look at the rehabilitation of public sector assets. If this means unlocking the value of land banks and the like, it may prove to be a very good idea, freed from the operational pressures which the managements of public sector units routinely face. However, throwing good money after bad at failing public sector units to revive their operations has been tried before and has failed miserably. It will be interesting to see what impact the Economic Survey has on the Union Budget to be tabled on February 1 for the first time, instead of the last day of February. However, what is certain is much of the doom forecasting coming from the Opposition post-demonetisation has been clearly overblown. Disclaimer: The opinions, beliefs and views expressed by the various authors and forum participants on this website are personal and do not reflect the opinions, beliefs and views of ABP News Network Pvt Ltd.