GST & Demonetisation Impact: Indian Economy Loses Pace

It is now a well-known fact that under the Modi government, the Indian Economy has faltered. Private investment has dried up, Non-Performing Assets (NPAs) in the banking sector have skyrocketed, unemployment has surged, and the GDP growth rate has plummeted. Indeed, the IMF also recently cut India’s GDP growth rate from 7.2% to 6.7%. What is even more remarkable about these failures is that they are occurring at a time of general economic recovery in the world. So, the Indian Economy is actually bucking the trend and failing at a time when macroeconomic indicators are relatively healthier.

The Indian Express reports India is one of the few countries in the world that is set to witness a slower rate of growth in FY18 over the previous year. While the economy expanded at 7.1% in FY17, it is projected to grow at only 6.7% this year. In sharp contrast, China is estimated to grow at 6.8%, slightly higher than 6.7% registered the year before. Hence, China will eclipse India for another year with its economy projected to grow faster.

Even the developed economies of USA and Japan are expected to grow faster by 50 basis points higher than that of last year. The IMF predicts the US to grow at 2.2% in the calendar year 2017 as compared to 1.7% the previous year, and Japan at 1.5% instead of 1% the previous year.

Even Brazil, that suffered a GDP contraction in the calendar year 2016 at -3.6%, is projected to expand at 0.7%. The world is expected to grow at 3.6% in calendar 2017 over 3.2% in calendar 2016.

The responsibility of derailing India’s growth story falls squarely on the inept government. Demonetisation and GST implementation are the reasons that stand out, amongst other things such as data fudging and inept ministers. There is a clear sense in the market that the two measures were employed without much thought and massively disrupted the economy.

By rushing through changes without thinking, the government has created a grim future for India. It has prevented the economy from riding the global recovery wave and instead sunk it like a rock. The window of opportunity is closing fast and the government needs to pull up its socks. We hope the government has its ears close to the ground.