Skip to main content

India's GDP to grow only by 6% till 2021-22, as demonetisation impacts consumption, delays investment: CMIE

By Our Representative
In a prediction which has stunned India's top policy makers, the powerful consulting firm, Centre for Monitoring Indian Economy (CMIE), has said that India’s real gross domestic product (GDP) growth would slip to 6% in 2016-17, and would remain “about 6% per annum for the next five years.”
Insisting that “demonetisation shock” has caused “sustained downturn” of the Indian economy, which was “expected to gradually accelerate its real GDP growth rate from 7.5% to over 8% per annum”, CMIE, which is a premier data dissemination and analysis institute of the country, says that “the immediate impact of demonetisation was a sharp reduction in private final consumption expenditure.”
This, it says, has accompanied with “a corresponding fall in retail prices of perishable commodities, a substantive dislocation of labour and corresponding losses in wages and a break-down of supply chains in many parts”, adding, this happened because of declined availability of "cash on hand to transact retail purchases" following the removal of 86% of the currency in circulation.”
“The cash to GDP ratio is high at 12% and reportedly over 90% of the transactions in India are cash based. As a result, the sudden and sharp reduction in currency had an immediate and significant impact on consumption expenditure”, says Mahesh Vyas, Managing Director, CMIE.
“Labour has been dislocated from productive work as they were forced to line up in front of banks to convert their old currency notes into new ones”, CMIE says, adding, “Given that banks did not have sufficient new currency notes, this led to substantial dislocation of labour and a corresponding loss of wages.”
“The fall in consumer demand combined with fall in availability of cash also led to a fall in the demand for labour. This sets in a vicious cycle of low demand for labour and low consumption expenditure”, CMIE says, adding, the low demand will “persist” till “liquidity is fully restored, confidence in liquidity is fully restored, and “consumers are yanked out of their equilibrium at lower levels of consumption of non-essential commodities. ”
Predicting that “none of these conditions are expected to be fulfilled in a hurry”, CMIE believes, things are unlikely to improve also because the Rs 2000 note is unlikely to restore confidence among consumers for quite some time because the government or Reserve Bank of India (RBI) “have not taken steps to scotch rumours of demonetisation of the note.”
“As a result, the effective liquidity in the markets is much lower than is measured by the issuance of new currency notes. The Rs 2000 note is less liquid than it would be without the rumours regarding its lifespan”, it adds.
“Further”, says CMIE, “A flight from currency in hand to other asset forms because of a fear of potential loss of liquidity through further demonetisation and a fear of raids or enquiries, could structurally reduce the propensity to spend on consumption goods.”
“As a result”, notes the top firm, “We expect the hit on consumer spending to last much longer than just a few quarters. Private final consumption expenditure (PFCE) grew 7.5% in 2015-16. We had PFCE expected growth to accelerate to 7.8% in 2016-17 and then to over 8% going forward. Now, we have scaled back the PFCE growth estimate to 5.5% for 2016-17 and to 6.8% per annum going forward.”
While, CMIE says, it does expect government spending to “offset part of the impact of demonetisation through increased spending”, it insists, “But, government has a smaller role and can contain the damage only partially.”
“This trend shift in consumption expenditure will delay a revival in investments”, says CMIE, adding, “We expect capital formation to shrink by nearly 2% in 2016-17 as against an earlier expectation of a 2.3% increase in the same.”

Comments

TRENDING

Swami Vivekananda's views on caste and sexuality were 'painfully' regressive

By Bhaskar Sur* Swami Vivekananda now belongs more to the modern Hindu mythology than reality. It makes a daunting job to discover the real human being who knew unemployment, humiliation of losing a teaching job for 'incompetence', longed in vain for the bliss of a happy conjugal life only to suffer the consequent frustration.

Critics of your government should not be in jail: PUCL shoots open letter to Modi

Counterview Desk In an open letter, Ravikiran Jain, national president, and Dr V Suresh, general secretary, People’s Union for Civil Liberties (PUCL) have taken strong exception to Prime Minister Narendra Modi’s view that raising human rights issues can ‘tarnish’ the country’s reputation, stating, those who raise human rights concerns do it “through established United Nations mechanisms such as the UN Human Rights Council, the Office of the UN High Commissioner of Human Rights.”

When judges behave more like priests, delivering sermons from high podium...

By Ajit Singh*  The theory of separation of power found its origins in ancient Greece but with the passage of time it became widespread in other parts of Europe. Early proponent of the theory Greek philosopher Aristotle in “Politics” argued that implementation of constitution in letter and spirit can only be possible if the three elements among whom the power has been distributed are well arranged.

'We are scared to even raise our voice': Delhi sewer workers tell roundtable

By Our Representative  A roundtable attended by more than 100 sewer workers in Delhi, saw sharp voices against the contract system, poor wages and lack of any social benefits. Organised by the Dalit Adivasi Shakti Adhikar Manch (DASAM), which has refused to reveal the identity of the sewer workers who spoke on the occasion for fear of retaliation from the authorities, saw workers complain that have been working for more than 10 years, hoping that someday they would be made permanent.

Buddhist shrines were 'massively destroyed' by Brahmanical rulers: Historian DN Jha

Nalanda mahavihara By Our Representative Prominent historian DN Jha, an expert in India's ancient and medieval past, in his new book , "Against the Grain: Notes on Identity, Intolerance and History", in a sharp critique of "Hindutva ideologues", who look at the ancient period of Indian history as "a golden age marked by social harmony, devoid of any religious violence", has said, "Demolition and desecration of rival religious establishments, and the appropriation of their idols, was not uncommon in India before the advent of Islam".

Muck being thrown in Uttarakhand rivers: Villagers face 'existential' crisis

By Vidya Bhushan Rawat*  The Uttarakhand government must act fast to clear the path of Dhauli Ganga river about two kilometres ahead of village Neeti and about one kilometre from Ghamsali village, which is about 90 kilometer from Joshi Math town in district Chamoli. The creation of an artificial lake due to throwing of muck and mud can create a catastrophic situation like what happened on February 7, 2021-- the Rishi Ganga-Dhauli Ganga tragedy at Tapovan and Raini village in which over 200 people lost their life.

How Indore turned into water minus city after authorities 'managed' Water Plus title

Water harvester cleaning up hyacinth from an Indore river By Rahul Banerjee*  Recently, the city of Indore was declared the first Water Plus city in India under the Swachh Sarvekshan programme of the Ministry of Housing and Urban Development for its ostensibly exemplary waste water management. However, the reality is quite different as a detailed study of the prevailing wastewater management situation in the city shows.

UP govt 'ignoring' demand to fill up teachers' posts despite unemployment: Rights groups

Sandeep Pandey with Shikha Pal Counterview Desk  Commenting on the unique protest undertaken by Shikha Pal atop an overhead water tank for nearly four months, the Socialist Party (India), in association with several civil rights group, Yuva Shakti Sangathan, Socialist Yuvjan Sabha and Rihai Manch, have wondered why has the Yogi Adityanath government is so “insensitive” towards her demands and is looking the “other way.”

Restricting use of public places for religious purpose: Will Gehlot govt respect HC order?

By Kavita Srivastava*  The People’s Union for Civil Liberties (PUCL), Rajasthan, has welcomed the judgment of the Rajasthan High Court dismissing the petition by Pooja Gurnani which challenged a circular of the Rajasthan government which restrained the construction of a ‘Pooja Sthal’ in the premises of a police station.

Rehabilitation site 'offered' to 6000 displaced Khori villagers not livable: Team Saathi

By Our Representative  Second round of the Chitthi Andolan (letter movement) of the Khori village residents, whose more than 6,000 houses were demolished as they were allegedly built on forest land, has begun, with hundreds of them telling the authorities of the Municipal Corporation, Faridabad, that no one has received the promised financial assistance of meagre Rs 2,000.