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.”



A Hindu alternative to Valentine's Day? 'Shiv-Parvati was first love marriage in Universe'

By Rajiv Shah*   The other day, I was searching on Google a quote on Maha Shivratri which I wanted to send to someone, a confirmed Shiv Bhakt, quite close to me -- with an underlying message to act positively instead of being negative. On top of the search, I chanced upon an article in, imagine!, a Nashik Corporation site which offered me something very unusual. 

'Attack on free expression': ABVP 'insults' Udaipur professor for FB post

Counterview Desk   People’s Union for Civil Liberties (PUCL), Rajasthan, condemning what it called "insult of Professor Himanshu Pandya" by students affiliated with with the Akhil Bharatiya Vidyarti Parishad (ABVP) in Udaipur, has said he was evicted from the class where he was teaching after raising "ugly slogans", forcing him to "leave the university".

Enhanced rock weathering leads to 9-20% higher crop yield, help climate resilience

By Aishwarya Singhal, Lubna Das*  Enhanced rock weathering -- a nature-based carbon dioxide removal process that accelerates natural weathering -- results in significantly higher first year crop yields, improved soil pH, and higher nutrient uptake, according to a new scientific paper, released in PLOS ONE, a peer-reviewed open access mega journal published by the Public Library of Science since 2006.

NE India: Creating 'greater divisions', BJP claims to have overcome tyranny of distance

By Makepeace Sitlhou*  In March, India’s prime minister, Narendra Modi, said at an election rally in Arunachal Pradesh that previous governments had not cared for states that sent only two representatives to the country’s Parliament, as Arunachal and several others in the Indian Northeast do. Modi failed to see the irony of his claim given that he has not visited Manipur, which has only two representatives in parliament, since the outbreak of an armed ethnic conflict that has raged on for nearly a year. The toll from the violence stands at more than 200 lives lost, and many thousands displaced.

Will numerically strong opposition in Lok Sabha strengthen democracy?

By Prem Singh*  After the first phase of the 18th Lok Sabha elections, which were conducted in seven phases, it was already indicated that a large part of the country's population had decided to contest the elections against the present government. A large number of unemployed youth and the already agitating farmers played a major role in this act of protest. 

Heatwave in Bundelkhand: 'Inadequate attention' on impact on birds, animals

By Bharat Dogra, Reena Yadav*  While the heat wave and its many-sided adverse impacts have been widely discussed in recent times, one important aspect of heat waves has not received adequate attention and this relates to the impact on birds and animals.

Adivasi rights leader arrested, 'taken away' in unregistered police vehicle

By Our Representative   In a surprise move, a People's Union for Civil Liberties (PUCL) activist, Sunita Potem, who has been raising issues of Adivasi rights in Bastar, has been arrested from Raipur. She was arrested by a team led by DSP Garima Dadar on June 3 "after being pulled out of her room at 8:30 in the morning by the team", sources said.