India’s Modi government under fire from opposition as GDP slows and demonetization failed

India’s incumbent Bharatiya Janata Party (BJP) government led by Prime Minister Narendra Modi is facing sharp criticism over his de-monetization. Back in November, in a surprised announcement, Modi government banned INR 500 and INR 1000 notes effective immediately that used to form of 86 percent of all cash and brought the Indian economy to a grinding halt. Government defended the decision by saying that it was a move to get rid of black money and fake notes. However, this week Reserve Bank of India (RBI) released its first report on de-monetization and indicated that almost 99 percent of all banned notes have been returned to banks, which indicates that Mr. Modi’s claim of fake notes and black money was not entirely correct. Many of the government critics, including Bengal’s firebrand leader Mamata Bannerjee pointed that so many lives were lost due to demonetization and for nothing. Former finance minister under Congress government P. Chidambaram said that only 1 percent or 16,000 crore worth of notes were not returned and government spent 21,000 crore to print new notes.

To add to the woe for the government, a separate report showed that India’s GDP growth which was a shining light last year when India became the fastest growing economy (9.1 percent), declined to just 5.7 percent in the second quarter of this year after declining to just 6.1 percent in the first quarter of this year. This is slowest pace of growth since 2014. The GDP growth rate has been slowing every quarter since March 2016, when it stood at a whopping 9.1 per cent. The slowdown was led by the manufacturing sector, which expanded at 1.2 percent from a year earlier compared with a 10.7 percent growth last year. The financial, insurance, real estate and professional services sectors also slowed to 6.4 percent in the June quarter from 9.4 percent a year ago. Further slowdown in the economy is expected as de-monetization of last year and this year’s implementation of goods and services tax (GST) continue to take their toll.