A blip on growth?

The World Bank has revised downwards India’s growth rate to seven per cent from 7.5 per cent, but with a clause that with various reform measures by the government, low oil prices and good agricultural output, the economy will soon be back to high growth. The bright spot is that even at seven per cent India is the fastest growth economy and way ahead of China. Much will depend on how fast the economy, that was picking up in mid-2016, recovers from the demonetisation shock. It is expected to lead to a one or two per cent drop in GDP for a  month or two. A major part of the economy depends on cash transactions, mainly in rural India.

Perhaps former Prime Minister Manmohan Singh’s dire predictions aren’t entirely misplaced. The government is yet to tell the nation how it will handle the demonetisation fallout. Millions of daily wage labourers lost their jobs and workers in the organised sector too face problems as production has been cut. There is no figure yet of how much black money has been caught, that could add to the government’s revenues. Even before demonetisation, private investment was not forthcoming as companies had huge debts on their books, banks were reluctant to lend and it was government spending on infrastructure projects that fuelled the economy. But the government too has cut its spending, and this is an area of concern. While it is true the Indian  economy is not export-dependent, weakness in global markets is impacting developing economies that were moving faster than developed economies.