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

Missed call drive for VVPAT verification follows online plea to "pressure" poll panel

By Our Representative
Several political activists have begun a new campaign, asking concerned citizens to give a missed call on 9667655855 to “support the demand that 2019 Loksabha elections must be declared only after verification of 50% electronic voting machines (EVMs) with Voter Verifiable Paper Audit Trail (VVPAT) receipts.” The effort, supported by civil society networks across India, is meant to "further pressure" India's election machinery to ensure that the poll outcome becomes more transparent.

Did Modi own, buy digital camera costing Rs 7 lakh in 1987-88, also used email?

Counterview Desk
In an interview to the news channel News Nation, aired on Saturday last, Prime Minister Narendra Modi declaring that he had approved the air strike despite bad weather because he felt the clouds would hide Indian planes from Pakistani radar is known to have become a laughing stock across India.

Now, top Gujarat "litterateur" close to Modi says: Godse was patriot, so was Gandhi

By Rajiv Shah
A little over a week after Prime Minister Narendra Modi criticized BJP candidate from Bhopal Pragya Thakur for calling Nathuram Godse a patriot saying he would never forgive her for the remark, a top Sangh Parivar ideologue, known to close to Modi in Gujarat, has supported her, saying her statement should be seen “within a context.” Thakur won from Bhopal by more than 3.5 lakh votes defeating her nearest rival, veteran Congressman and ex-Madhya Pradesh chief minister Digvijay Singh.

When a neo-nationalist "invaded" hijab clad ladies, Bengali looking scholar in Delhi metro

By Aditi Kundu*
Travelling in Delhi metro on a daily basis to commute from Mayur Vihar to Dwarka, I see diverse people everyday. One can hear them talk about different aspects of life, from kitchen pilitics to national politics. On the morning of May 13, I witnessed a strange incident; disturbing and amusing at the same time.

Terror attacks: Difference in public reactions in India, those in Colombo, Christchurch

By Battini Rao*
Recently, on April 20 during Easter Sunday, more than 250 people were killed in a series of coordinated terrorist attacks in churches and hotels in Colombo, Sri Lanka. Local Islamic organisations Thawheed Jamath (NJT) and Jamathei Milathu Ibrahim (JMI) are held responsible for the attack. Islamic State has also claimed responsibility.

Women lost 88 lakh jobs in 2018: Why Modi "failed" to address their disempowerment?

Counterview Desk
Five human rights leaders Anjali Bhardwaj, Shabnam Hashmi, Purnima Gupta, Dipta Bhog, and Amrita Johri of the Women March for Change have posed 56 questions (alluding to Modi’s claim of 56 inches chest) to Prime Minister Narendra Modi and BJP against the backdrop of his interview with a Bollywood star, which was allegedly masqueraded as a “non-political” conversation.

Disproportionately high death sentences against Dalits, Adivasis, Muslims: UN told

Counterview Desk
In their joint submission to the United Nations Human Rights Committee to meet for the listing of adoption of list of issues at its 126th session, July 1-26, 2019, top Dalit rights organizations have taken strong exception to, among other things, "disproportional application of death sentencing by the judiciary of minorities, such as Muslims, Dalits and Adivasis".

World Bank clarifies: Its 26th rank to India not for universal access to power but for ease of doing business

By Our Representative
In a major embarrassment to the Government of India, the World Bank has reportedly clarified that it has not ranked India 26th out of 130 countries for providing power to its population. The top international banker’s clarification comes following Union Power Minister Piyush Goyal’s claim that India has “improved to 26 position from 99” in access to electricity in just one year.

India's 80% construction sites "unsafe", deaths 20 times higher than those in Britain

By Rajiv Shah
The Government of India may be seeking to project India’s construction sector as the country’s second-largest employer of the country after agriculture, providing jobs to more than 44 million people, and contributing nearly 9% to the national GDP, yet, ironically, its workforce is more unprotected than any other industrial sector of the country. Data suggest that the possibility of a fatality is five times more likely in the construction industry  than in a manufacturing industry, and the risk of a major injury is 2.5 times higher.

India sans Modi preferable, Congress worthier recipient of Indians’ votes: The Economist

By Our Representative
In a strongly-worded and crucial commentary on Prime Minister Narendra Modi as the electoral political battle is on, influential British weekly “The Economist”, has declared that “Indians, who are in the midst of voting in a fresh election, would be better off with a different leader”, even as pointing out that that under Modi, “India’s ruling party poses a threat to democracy.”