The Big Slide: Did both GST, demonetisation do more harm than good to economy?
On November 24, 2016, a fortnight after Prime Minister Narendra Modi announced that high-value currencies of Rs 500 and Rs 1,000 denominations would no longer be legal tender, his predecessor Manmohan Singh called it a "monumental disaster". The move, he said, could set the country's GDP back by two percentage points. The government was quick to brush away his concerns, and, with growth slowing to only 7 per cent that October-December quarter, argued that demonetisation was being unnecessarily demonised. Economists raised their eyebrows then, warning that the GDP figures probably missed the pain in the informal sector, and would come to haunt the government in subsequent quarters.
And they did. On August 31, the Central Statistics Office said GDP growth had slipped to 5.7 per cent in the April-June quarter, the lowest in three years. The big disappointment came in the manufacturing sector, which grew at a five-year low of 1.2 per cent, down from 10.7 per cent a year ago. A day earlier, the Reserve Bank of India (RBI) had said most of the demonetised currency was back in the banking system (99 per cent of the demonetised Rs 15.44 lakh crore). And contrary to the hope that some Rs 3-to 4 lakh crore worth of black money would be 'destroyed', RBI's surplus payable to the Centre out of its earnings for 2016-17 more than halved to Rs 30,650 crore from a year ago.
