Has India Really Ducked Demonetization?

  Author: Jai Prakash

This news will come as a relief for all Indians who were wondering about the impact of demonetization on the growth of the Indian economy. Earlier in the week, the Central Statistics Organisation (CSO) announced an advanced estimate of GDP growth rate of 7.1% for the third quarter of the current financial year. This is the same period of October to December when the impact of demonetization of Rs 500 and Rs 1,000 notes in early November was felt by Indians.

Sectors to the rescue The government is attributing the growth in the GDP due to growth in agriculture, mining and some types of manufacturing like that of steel. For instance, agriculture sector grew at 4.1%. This is due to a turnaround in the sector after a good monsoon in 2016. Then, Steel production grew at 11.4% with many other sectors showing growth. Of course, there are sectors that witnessed reversals. Cement was one of them witnessing a contraction of 13.3%

While there might be people who would be quick to jump and say that demonetization hasn’t really impacted the Indian economy, there is likely to be much more to the picture. For one, informal sectors, like retail trade, whose fortunes don’t get captured by national income and other statistics, were clearly the most affected by demonetization. Second, cash shortage typically impacts consumption purchases especially fast moving consumer goods (FMCG). This has also got reflected in the third quarter results of companies. As the supply of currency notes gets back to near-normal levels one can expect a journey towards normalcy in these areas. For the time being, people in India and NRIs would be relieved that there is still no hard evidence of widespread damage due to demonetization.