Wish the government would stop trying to defend demonetisation. Every time there is bad economic news, the government jumps up to proclaim that demonetisation was the boldest and best reform since cowrie shells were first used as currency three thousand years ago (now you know the origin of “ek phooti kauri”).

Trying too hard to justify either demonetisation or the Goods and Services Tax (GST) is like going from the indefensible to the incomprehensible, as If there were nothing the economy needed more than a double punch in the solar plexus.

The numbers tell all. Gross domestic product growth sagged to 6.1 per cent in the January-March quarter (immediately following note bandi) and has sunk further to 5.7 percent in the April-June quarter, ostensibly because businesses were ‘de-stocking’ inventories ahead of GST. Unless every man, woman and child rushes to the nearest mall and spends the promised Rs 15 lakh in the next few months, we are not going to grow by the 7.5 per cent the government is bravely hoping for in fiscal 2017-18.

Ten months in, demonetisation looks like a lot of pain for very little gain. Here’s one number: if you take the ‘unreturned’ currency notes (a mere Rs16,000 crore) plus unexplained income of Rs 17,526 crore (presumably part of the returned currency) to be black money, you get a just over two per cent of the Rs15.44 lakh crore in banned notes as of November 8, 2016.

Income-tax authorities have been busy data-mining and conducting raids, but do you really believe that re-monetisation, with banknotes now in circulation at 83 per cent of pre-demonetisation volumes, means we are truly ‘less-cash’?

The government’s copy-writers say demonetisation and GST were “humongous measures which had changed structural and ethical foundations of lndian economy”.

The result? Hardly any sector is doing well. Gross value added (GVA) in agriculture fell sharply to 2.3 per cent in the April-June quarter from 5.2 per cent in January-March. Manufacturing GVA plunged to 1.2 per cent growth from 10.7 per cent a year earlier. Construction is asphyxiating.

It is high time for alarm, but not panic. The Index of Industrial Production (IIP) grew only 0.1per cent to119.6 in June. Fifteen out of 23 industry groups shrank. Surprisingly, though, the Nikkei India Purchasing Managers’ Index for August rose to 51.2, a revival from July’s 47.9 – a nasty knock-down after GST was introduced and an eight-and­ a-half-year low. This means manufacturing and domestic demand may revive.

If you add these signals to the steady hum of lower inflation, a gradual pick-up in exports, a stable rupee and optimistic stock markets, why should we be worried, as the second volume of the Economic Survey released on August 11 was, about deflationary signs?

The Survey says that in India, unlike other countries, the boom in the mid-2000s was not followed by serious deleveraging, which means bringing down the huge debt levels among big, profligate companies. “While the slow growth of bank-credit in the last two years has been a source of concern, the ques­tion may well be not the slowdown but whether there has been enough of it,” the Survey says provocatively.
That might well come true.

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