economic recovery

Economy yet to recover from the body blow of demonetisation, admits Economic Survey

The Economic Survey stated that long term benefits of the exercise are yet to materialise.

It is now over nine months since the government suddenly withdraw 86% of India’s currency in November but India’s Chief Economic Advisor Arvind Subramanian remains unsure if this note ban or demonetisation actually helped any sector of the Indian economy, the latest volume of Economic Survey tabled in Parliament on Friday suggests.

The Chief Economic Advisor is always the leading author of the Economic Survey but it is a joint effort of the government led by key writers in the finance ministry. It often goes through reviews of select parts because it is meant to provide a critical view of the past as well as project the economic and development direction for government to follow in near and long-term future. This iteration of the report was keenly awaited as it provided the first chance for Arvind Subramanian to take stock after a series of data on the impact of demonetisation has already been revealed.

While this latest edition of the Economic Survey was supposed to come with more macro-level data and evidence to make conclusions about the efficacy of the move, the only conclusion Subramanian seems to have drawn is a confirmation of economists’ worst fears that demonetisation jeopardised both the formal and informal economy and even after nine months, recovery is not yet complete.

In the mid-term Survey, Subramanian stated that demonetisation hit the informal sector hard even as there is a lack of data to quantify the amount of stress those in the informal economy had to bear because of the move.

Informal sector hit

Maintaining that the demonetisation exercise will result in short-term costs, the Economic Survey stated that most sources of data capture the formal sector, which was largely insulated from the demonetisation shock. The Survey looked at two-wheeler sales as a proxy for the health of the informal sector.

“A proxy for informal sector effects is two-wheeler sales which showed a rapid decline following demonetization but has, after more than six months, almost returned to pre-demonetization levels. The cumulative shortfall between actual sales and the trend lines is a proxy for the short-run informal costs”

— Economic Survey of India, Volume II

A closer look at the chart provided in the Survey suggests that while two-wheeler sales are almost back to the level seen in October 2016 (pre-demonetisation), they are yet to match even the levels seen in September – indicating a prolonged recovery phase rather than growth in income levels of people.

At the same time, the Survey also analysed the demand for insurance – as households facing a cash crunch would have asked for insurance post demonetisation as their income sources dried up. Insurance implies formal social sector welfare funds as well as informal transfers from family and friends.

The Economic Survey studied district-level data for the Mahatma Gandhi National Rural Employment Guarantee Scheme and concluded that there was indeed increased demand for work in the demonetisation period, especially in the lesser developed states.

“There is suggestive evidence of increased demand for insurance over the demonetization period (early November 2016-March 2017). This is especially strong for the less developed states, comprising Bihar, Chattisgarh, Rajasthan, Jharkhand, West Bengal, and Odisha which witnessed about a 30 percent increase in mandays worked.”

— Economic Survey of India, Volume II

No impact on the housing sector

When demonetisation was announced, it was hoped that it would rein in corruption by bringing more areas of the economy into the formal sector and prevent black money from being parked in real estate projects, which leads to artificially high prices in the housing industry. The withdrawal of high-value currency was seen as a step towards this aim that could bring down housing prices by removing black-money components in these transactions.

The Economic Survey tabled on Friday stated that this doesn’t seem to have happened at all. It said that the rate of rise in housing prices was coming down even before the demonetisation exercise even as it reduced further post demonetisation. However, it noted that prices have started rising again, thus reversing what was earlier being seen as a demonetisation-linked achievement by some.

“Even prior to demonetization, there was a deceleration in house price inflation, and there was a further reduction in prices post demonetization. The decline has since been reversed, and prices appear to be rising again.”

— Economic Survey of India, Volume II

Tax base widens but collections unlikely to rise

The first volume of Economic Survey tabled in Parliament had called it a “radical, unprecedented move” which would tackle the problem of corruption, counterfeit currency and bring more people under the tax net. While the updated version released on Friday says that an additional 5.4 lakh people came under the tax net after demonetisation, it added that actual tax collections may not increase by a large amount.

“It is, however,interesting that the average income reported of the new taxpayers-Rs. 2.7 lakh- was not far above the tax threshold of Rs. 2.5 lakh, so the immediate impact on tax collections was muted. The full effect on collections will materialize gradually as reported income of these taxpayers grows.”

— Economic Survey of India, Volume II

Industry continues to bleed

On Friday, Economic Survey’s second volume was released which pointed out that demonetisation did lead to a slowdown in the industrial growth in the third and fourth quarters of the last financial year. By evening, however, a more worrying statistic was released by the government which showed that factory output in the country shrunk for the first time in four years in June this year, as shown by the index of industrial production.

While it was assumed that there would only be short term pains for industry due to lower demand by consumers, the IIP numbers proved that the impact of demonetisation continues to linger on for Indian manufacturing companies, economists said.

The Economic Survey, however, took note of the industrial slowdown as well while admitting that achieving the projected gross domestic product growth target of 7.5% could be difficult. At the same time, it took note of the new index of industrial production series which showed a slowdown of the industry in the last two quarters of the financial year ended March 2017.

“The new series captured the slowdown in industrial growth in Q3 and Q4 post demonetisation, while the old series showed an acceleration in growth in the same period,” the survey said.

We welcome your comments at letters@scroll.in.
Sponsored Content BY 

Bringing your parents into the digital fold can be a rewarding experience

Contrary to popular sentiment, being the tech support for your parents might be a great use of your time and theirs.

If you look up ‘Parents vs technology’, you’ll be showered with a barrage of hilariously adorable and relatable memes. Half the hilarity of these memes sprouts from their familiarity as most of us have found ourselves in similar troubleshooting situations. Helping a parent understand and operate technology can be trying. However, as you sit, exasperated, deleting the gazillion empty folders that your mum has accidentally made, you might be losing out on an opportunity to enrich her life.

After the advent of technology in our everyday personal and work lives, parents have tried to embrace the brand-new ways to work and communicate with a bit of help from us, the digital natives. And while they successfully send Whatsapp messages and make video calls, a tremendous amount of unfulfilled potential has fallen through the presumptuous gap that lies between their ambition and our understanding of their technological needs.

When Priyanka Gothi’s mother retired after 35 years of being a teacher, Priyanka decided to create a first of its kind marketplace that would leverage the experience and potential of retirees by providing them with flexible job opportunities. Her Hong Kong based novel venture, Retired, Not Out is reimagining retirement by creating a channel through which the senior generation can continue to contribute to the society.

Our belief is that tech is highly learnable. And learning doesn’t stop when you graduate from school. That is why we have designed specific programmes for seniors to embrace technology to aid their personal and professional goals.

— Priyanka Gothi, Founder & CEO, Retired Not Out

Ideas like Retired Not Out promote inclusiveness and help instil confidence in a generation that has not grown up with technology. A positive change in our parent’s lives can be created if we flip the perspective on the time spent helping them operate a laptop and view it as an exercise in empowerment. For instance, by becoming proficient in Microsoft Excel, a senior with 25 years of experience in finance, could continue to work part time as a Finance Manager. Similarly, parents can run consultation blogs or augment their hobbies and continue to lead a fulfilling and meaningful life.

Advocating the same message, Lenovo’s new web-film captures the void that retirement creates in a person’s life, one that can be filled by, as Lenovo puts it, gifting them a future.

Play

Depending on the role technology plays, it can either leave the senior generation behind or it can enable them to lead an ambitious and productive life. This festive season, give this a thought as you spend time with family.

To make one of Lenovo’s laptops a part of the family, see here.

This article was produced on behalf of Lenovo by the Scroll.in marketing team and not by the Scroll.in editorial staff.