Slamming demonetisation as a major factor responsible for the current deceleration in the economy, former Finance Minister P. Chidambaram says the government was "clueless" about the causative factors on why the GDP was declining and unless these are addressed the Indian economy would be stuck at six per cent growth.
If a government is clueless about the causative factors, I am afraid, it is incapable of taking corrective actions. One of the major causative factors was demonetisation which happened in the third quarter of 2016-17. But the government is unwilling to admit that demonetisation was a causative factor — P Chidambaram
He also said that if the government that came on the promise of "good days" (achche din) cannot deliver on growth and jobs in 1,200 days in power, it cannot do so in the next 600 days. "Therefore, he (Prime Minister Narendra Modi) has cleverly shifted the goal post to 2022 as though his five-year term is beginning in 2017. It is for the Opposition to expose this," Chidambaram told IANS in an interview.
Reacting to the latest Central Statistical Organisation (CSO) figures on GDP growth, he said it had declined for six successive quarters – from 9.1 per cent to 7.5 per cent, 7 per cent, 6.7 per cent, 6.1 per cent and now 5.7 per cent.
"I have been writing about it, speaking about it and pointing out why it is declining. In my view, government seems clueless about the causative factors why the GDP growth is declining. If a government is clueless about the causative factors, I am afraid, it is incapable of taking corrective actions. One of the major causative factors was demonetisation which happened in the third quarter of 2016-17. But the government is unwilling to admit that demonetisation was a causative factor," he said, adding that the causative factors were many, and demonetisation, though a major one, was not the only factor.
Unless the government addressed the causative factors, the economy would be stuck between 6 per cent and 7 per cent growth. "If you go by Q1 of 2017-18 it may even be some 6 per cent. The point I have been making is in UPA-I, the economic growth was between 8 per cent and 9 per cent. Average was 8.5 per cent. In UPA-2, the rate of growth was between 7 per cent and 8 percent. In fact, it continued in the first two years of NDA government. Now since 2016-17, it has come to between 6 per cent and 7 percent. That is worrying."
Asked what the government should do, he shot back, "I am not giving them free advice. An economy where export growth is not 15 per cent a year cannot grow at 7 per cent. That is true."
Asked if all the present ills of the economy could be blamed on demonetisation, the senior Congressman said, it was a major factor. The declining trend had started three quarters earlier. "Demonetisation happened in Q3 of 2016-17 and then Q4 of 2016-17 and Q1 of 2017-18 also continued to see the decline. Demonetisation accelerated the pace of decline," he said.
He said the government had no idea when it made the claim in the Supreme Court that it expected Rs 4 to Rs 5 Lakh crore not to come back into the system after demonetisation. It was a simply a shot in the dark. "I think if there is a proper adjudication, proper investigation,
it is possible that out of Rs 15.28 lakh crore that was deposited, in a period of five to six years it might be able to an get additional tax revenue of few thousand crores of rupees. "Let's assume that you got about Rs 10,000 crore of additional tax. Is that worth the kind of disruption that you have caused? Is that worth the kind of pain you put the people through?" he asked.
On Raghuram Rajan breaking his silence over demonetisation, Chidambaram said: "And I know that when he left office he had left a five-page note for the government, saying why demonetisation was not advisable. But it was the government's decision to do demonetisation.
(He advised) they should take a number of preparatory steps and give time to RBI to get ready before the announcement of demonetisation. His views were rejected both on the decision to demonetise and on the preparatory steps that were required to be taken before demonetisation."
On the introduction of the Rs 2,000 currency note, Chidambaram said there was no logic behind that. On the implementation of the Goods and Services Tax (GST), Chidambaram said it was a good idea and good tax, but the way it was rolled out, the government has caused a massive disruption.
" The textile sector has been disrupted…The compliance costs are so high that small and medium business are suffering a huge amount of pain and loss. And the frequent changes in the rates is extremely upsetting. For example, the automobile industry says how can we invest so many thousands of crores of rupees if you keep on increasing the tax rate," Chidambaram said.