Was Demonetization Worth The Trouble?

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When 86 percent of a country’s currency banned out overnight, India’s economy is proving to be silent. The Gross domestic product is expected to rise by 6.8% by March- Although the slowest since 2014, but the fastest in the world.

However, analysts and lobby groups say that the data mask losses at small companies, which employed 40 percent of the India’s workforce and are the secret behind the nation’s growth. The slowdown will be evident once the fiscal year is done and balance sheets are unfurled, said by Raghunathan, the President of All India Manufacturer’s Organisation. He claimed to represent as many as 1,00,000 small firms, but the government is avoiding that.

While Prime Minister Narendra Modi staked his personal credibility on the demonetization experiment, foreign investors opt to wait for the uncertainty.

As per a Bloomberg Survey, GDP slowed down from October-December from a year earlier. From 7.3 percent the previous quarter Gross value added, it went to 6 as compared to 7.1%.

1The figures may not fully capture the Modi’s clampdown since those numbers didn’t rely heavily on data from the formal sector. Growth in loans to industry had dropped down to a record of 4.96 percent as on Feb 3.

On the surface, the outlook appears bright. 20 of the 30 companies in India’s benchmark equity gauge have beaten or matched their October-December earnings estimates, according to Bloomberg. Starting from April 1, the government also announced tax cuts for small companies, without linking it directly to the demonetization.

Reserve Bank of India’s Governor, Urjit Patel said that the view was echoed by the Finance Ministry’s advisers in a pre-budget report last month. Regardless, they also warned of real and significant costs that may be minimized in official GDP.

He also mentioned that neither the expert figures would be great nor will job losses be reflected. In one sense, the picture won’t be complete.

 

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