The year 2017 began against the backdrop of the sudden decision by the government of India to demonetise Rs 500 and Rs 1,000 notes, purportedly for tackling the problem of black money, counterfeit currency notes and terror funding in the country.
On November 8, 2016, the Prime Minister himself had asked for 50 days for the policy to roll out, proclaiming that by the time India ushered in the New Year 2017, India would be free from the problem of black money and a huge tax bonanza would result from confiscation of the same.
However, as 2017 drew closer, it became crystal clear that all this tall talk was essentially propaganda with little substance. The RBI Annual Report of 2016-17 shows that out of Rs 15.44 lakh crore worth of banned notes, Rs 15.28 lakh crore or 99 per cent came back to the banks, destroying all the claims that black money would be crushed through demonetisation.
Also, till date, tax collection data has not show any marked improvement as a result of demonetisation. The government’s argument that such money will be unearthed in the future and attached is like giving a post-dated cheque to the people which might bounce.
Only Rs 41.5 crore worth of fake notes were detected in Rs 500 and Rs 1,000 notes, which amounts to 0.003 per cent of the total deposited notes. In other words, 2017 has proved decisively that demonetisation was a failure.
Additionally, the hasty implementation of GST has again hit the economy hard, resulting in a serious economic slowdown. As per the latest figures, in 2016-17, the half-yearly growth rate of the economy was 7.2 per cent, which has reduced to only 5.8 per cent in the half year of 2017-18.
Additionally, the figures for the second quarter of 2017-18 show that there has been a significant reduction in the growth rate of agriculture from 4.1 per cent (2016-17Q2) to a meagre 1.7 per cent in 2017-18Q2.
Similarly, the investment-GDP ratio, an important indicator of the dynamism of the economy, has continued its downward slide. The news from the industrial front paints the same picture — the growth rate of industry was only 2.2 per cent in October 2017.
The year 2018 will pose further challenges to the government in economic management in at least three distinct areas.
Firstly, international oil prices are hardening up. The government had the benefit of riding on low oil prices, which would have kept the inflation rate low and allowed for increased tax collection from excise duties on oil. That space is fading.
Secondly, India’s current account deficit is worse as compared to last year due to increased oil prices. This can further worsen due to higher imports and lower exports.
Thirdly, the November retail inflation rate touched almost 5 per cent, which is much higher than last year.
According to various studies, job creation in the country has not increased in the last three years. This too needs serious attention. How the government tackles these problems in 2018 will determine to a large extent, its electoral fortunes in 2019.
— Subhanil Chowdhury is an economist and is currently an assistant professor (economics) at the Institute of Development Studies, Kolkata.
