‘Bitter lessons learnt may erase note ban from economic lexicon’

First, looking at the macro perspective, it will be observed that India’s growth rate over the last 7 quarters has declined significantly while some of the large economies have performed well, relative to their past growth rates. China appears to have shrugged off their loss of momentum and the IMF forecast for all these 3 economies as well as for other countries, is quite positive for 2018.

Meanwhile, India seems to have lost steam and one can conclude that the negative factors in the Indian economy have got accentuated by demonetisation. Simple economics tells us that when you destroy purchasing power in the hands of 95% of the population, you are quite definitely setting in motion a downward demand spiral, particularly for FMCG products, textiles, consumer durables and so on. 

The demonetisation impact on the retail trade has been quite severe and the economy has gone through a phase of demand contraction quite similar to the situation in the mid-70s. The top line numbers for some of the major FMCG companies in India shows that revenues have virtually stagnated over the last 2 years and most of them reported weakening sales post-demonetisation. 

Sectors that depend on these FMCG companies such as packaging have also been severely hit. While the numbers are not yet out, the investment trend in manufacturing appears to have slowed down, as well. The pain and trauma that most Indians went through for several months post demonetisation, has clearly been to no end as none of the original stated objectives appear to have been met. The key for the future of the economy is how to win back the confidence of the consumers and get firms to invest more on job creating manufacturing sector. 

However, a fresh thorn has been placed on the path by way of a complex GST that has particularly impacted the small manufacturers and service providers. The Government’s effort at pump priming through stepping up investment in infrastructure will come to a nought if these are not accompanied by raising the GST limit significantly for small units and simplifying the complex documentation. As for demonetisation, with the bitter lessons learnt, one hopes that the powers-that-be will ban the word forever from the Indian economic lexicon!