More than six months after Prime Minister Narendra Modi announced the withdrawal of currency notes of Rs 500 and Rs 1000, actual data on the impact of demonetisation is still trickling in. Manufacturing data released late last week revealed that industry had taken quite a hit after the currency was sucked out of the system. Just a few days later, Finance Minister Arun Jaitley announced that the note-swap scheme has led to the government adding 91 lakh new taxpayers to its base, a large jump over the usual annual increase.

Manufacturing data

The government on Friday changed the base year for the Index of Industrial Production from 2004-05 to 2011-12. The IIP measures the volume of production of a basket of industrial products to provide policy-makers with an idea of how well the formal industrial sector is performing. Current numbers are measured against a base year to estimate growth. The new series, announced on Friday, gave us the clearest yet idea of what happened to manufacturing growth after Modi’s demonetisation announcement.

With the previous base year, the IIP numbers for the period just after demonetisation seemed much more scattered, swinging from a growth of 5.7% in November to -1.7% in December and then back up to 2.9% in January. The new base, which the government presumably considers to be more accurate, makes it evident just how much manufacturing was squeezed in the aftermath of the move.

This is doubly important because the IIP only samples from the formal sector, giving us an idea of what has happened in that portion of the economy. Since, by its very nature, demonetisation would have hit the informal sector harder, the IIP data suggests the story there might be even worse.

Taxpayer base

Finance Minister Arun Jaitley, while announcing the launch of phase two of Operation Clean Money, said that 91 lakh people new taxpayers have been added to the base. According to Mint India adds a total of about 50 lakh taxpayers every year – 60 lakh new ones and about 10 lakh going off the rolls because of death, retirement or other reasons.

Jaitley’s claim that India added 91 lakh new taxpayers in financial year 2016-17 suggests the government added 41 lakh more taxpayers than normal, which Jaitley attributes to demonetisation.

Increase of the tax base has been one of the key aims of the government. In June 2016, Modi announced the aim of taking the number to 10 crore taxpayers. Jaitley also complained about the low number of taxpayers in his budget speech earlier this year. According to officials speaking to Mint, the tax base has expanded to 6.5 crore from 5.5 crore the year before. Only 3.7 crore filed tax returns in 2015-16, though more people pay tax than file returns.

The Economic Survey, presented before the budget said that the tax base as well as the amount of tax collected will be the key metric to watch to see if demonetisation has succeeded. The Survey said the numbers should rise “significantly”, and that will be the “surest sign of success.” It is unclear if adding 41 lakh amounts to a significant increase, though Modi’s stated aim of 10 crore is still some distance away.

Yay or nay

More data is expected soon that will give us a clearer picture of what happened over the last six months. The government has yet to tell us how much currency was deposited in the form of old notes, after initial claims suggested that the shortfall could turn into a dividend for the country. RBI is expected to provide this data in July.

The final amount of tax money gained will only be complete once the government puts out data about the two amnesty schemes it ran, as well as overall tax collections for the previous financial year – although the data so far suggests it will be much less than the amount predicted by economist Jagdish Bhagwati.

Former World Bank chief Kaushik Basu concluded in a piece last week that if you look only at the economic data – putting aside the massive electoral victory the Bharatiya Janata Party earned in Uttar Pradesh after demonetisation – you would conclude that demonetisation was a failure. Vivek Kaul wrote that cash is back in flow, with little to impede the fresh generation of illicit funds. And Tony Joseph argued that the original two arguments of attacking counterfeit currency and terror funding have also disappeared.

R Jagannathan, however, cautions against making any conclusions just yet. He suggests the January-March GDP data, due at the end of the month, and even the first quarter data for financial year 2017-18 will have more of a bearing on what he says is likely to be a ‘V-shaped recovery’. But with the last GDP numbers already causing befuddlement among many observers, it is still unclear when we will have a firm understanding of Modi’s grand experiment.