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June 8, 2017

Economy in one big mess due to demonetisation – Hard numbers tell the story

Economy in one big mess due to demonetisation – Hard numbers tell the story

Bengal Chief Minister Mamata Banerjee had voiced her concern within an hour of the announcement of ‘demonetisation’ on November 8, 2016, that the country would have to face severe loss of jobs and drastic decline in productivity due to demonetisation. She had been leading the protest ever since. The recent figures announced by the RBI on Wednesday, June 7 are clear indicators that the Bengal Chief Minister had been right:

Here are the figures:

  • Real GVA pegged at 6.6% for 2016-17, lower than second advance estimates released in February 2017. This despite good monsoon and record foodgrain production.
  • Fall in GVA due to underperformance in construction, financial and professional services, and real estate during Q4 (Oct-Dec ’16).
  • Slowdown in activity in both industry and services set in as early as Q1 of 2016-17 and became pronounced in Q4.
  • Components of aggregate demand reflect a contraction in gross fixed investment, and production of capital goods in Q4.
  • Prices of vegetables fell markedly from July and bottomed out in January 2017, with fire sales during the demonetisation period accentuating the fall. RBI is admitting that demonetisation was behind the hardship faced by farmers.
  • All Mandis have reverted back to cash transactions. So what was the point in forcing people to go digital?
  • Monetary Policy Committee noted that effects of demonetisation have lingered on in price formations with respect to fruits and vegetables, pulses and cereals. Farmers not getting proper value for their produce.
  • Manufacturing purchasing managers’ index (PMI) moderated sequentially in May ’17 as employment contracted and new orders, both domestic and exports, slowed down.
  • Sales of commercial vehicles, two-wheelers and three-wheelers contracted.
  • Both steel consumption and cement production sluggish, pointing to continuing weakness in construction activity.