Time to re-form to reform
India’s GDP has grown at an annual average rate of 7.5% during the five years ended 2018-19. This average figure masks considerable variation in the annual rates, which peaked at 8.2% in 2016-17 and bottomed out at 6.8% in 2018-19. In the quarter ended March 31, 2019, growth fell to the worrying level of 5.8%. According to most reports, recovery in the growth rate appears sluggish for now.
Some commentators point to demonetisation as a key trigger that led to the fall in the growth rate. But proponents of this view have provided no credible supporting evidence. Given that demonetisation took place in early November 2016, its impact should have been concentrated in 2016-17, which is not the case. One may invoke the argument that the effect took place with a lag. But given the instantaneous nature of the event, absence of any perceptible immediate impact greatly undermines the validity of the argument.
According to another hypothesis, introduction of the goods and services tax (GST) and the disruption accompanying it were responsible for the decline.