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Jaitley downplays demonetisation impact on GDP, says corruption and black money tackled

Arun Jaitley rubbished the impact of demonetisation on India’s economic growth, says 7-8% growth is very reasonable.

business Updated: Jun 04, 2017 23:25 IST
Suchetana Ray
Finance minister Arun Jaitley said some slowdown symptoms were visible even before demonetisation.
Finance minister Arun Jaitley said some slowdown symptoms were visible even before demonetisation.(Reuters File Photo)

Finance minister Arun Jaitley played down the impact of demonetisation on growth saying that a “7-8% growth is very reasonable”, he clarified that global factors were responsible for a GDP growth of 6.1% in the three months of January to March.

“There are several factors which affect GDP. Even before demonetisation, there was some slowdown. I do believe, that in the current global situation, a 7 to 8% growth which is at the moment an Indian normal, is a reasonable growth,” said Jaitley.

The finance minister was addressing a press conference on the Narendra Modi government completing 3 years in office and highlighted the key achievements of his ministry.

Asia’s third largest economy was on the path of deceleration since the July-September period of 2016-17, but it was sharper during demonetisation in the third quarter where GDP stood at 7% and in the January-March phase, when growth dropped to 6.1%. This is the slowest quarterly GDP growth in three years, say experts.

“To be fair, the economy was in a slowdown mode from the second quarter of 2016-17, and only accelerated in Q3 and Q4. On the other hand, the distinct slowdown in Q4 could be explained partly by the price impact... In a nut shell, the GDP slowdown is both a pre and post demonetization phenomenon,” said Soumya Kanti Ghosh, group chief economic advisor, SBI.

But economists such as Kaushik Basu and former Prime Minister Manmohan Singh had warned that sucking out 86% of India’s currency would send shock waves through the economy that is heavily cash reliant. But finance minister Arun Jaitley had at the time dismissed these claims.

“The steps taken by the government were the right ones and will have a positive impact on the economy,” Jaitley had remarked.

“Demonetisation impacted the informal sector greatly, maybe temporarily. But the informal sector contributes 30-40% of the GDP, so it is not correct to brush away the impact of demonetisation on the latest GDP number,” said economist Ajit Ranade.

Experts said that once the impact of demonetisation pales, the challenges for India to accelerate growth would be to pump life into the construction sector that contracted in the fourth quarter of 2016-17. The importance of this sector apart from being a growth propeller is that it is labour-intensive. The government also has to find a solution to the investment to GDP ratio, which determines future expansion of the economy. This ratio has been on the decline for the past few years.

Referring to the challenges, Jaitley noted the issues of bad loans in the banking sector and kick-starting private sector investment.

When Jaitley had taken over in 2014, India had multiple economic battles to fight. From policy paralysis, tottering growth to high inflation, Arun Jaitley had a tough task ahead of him.

And he listed decisive policy making, crackdown on black money and check on corruption by changing government rules as important factors that restored India’s economic credibility.

“We set a new normal after demonetisation. It is no longer safe to deal in cash. We have shown decisiveness in policy making,”said Jaitley.

The finance minister rubbished claims of jobless growth as opposition’s propaganda.

“People need some issues for propaganda. Jobs don’t get created outside economic sector. If growth increases, jobs will also grow,”Jaitley said.