Economics of note ban: Why this is Manmohan Singh's turn to laugh

Yesterday's GDP growth data showed how badly demonetisation has hit the economy. In November 2016, a couple of weeks after Prime Minister Narendra Modi announced his shock step, former prime minister Manmohan Singh had warned of exactly that. Manmohan Singh said demonetisation could shave 2 percentange points off GDP growth.

India's GDP grew 5.7 per cent on a year-on-year basis during the April-June period (Q1). It was 7.9 per cent for the same quarter last year. However, sequentially, the GDP growth is down 1.3 percentage point from 7% growth in Q3 of 2017.

Widely credited for launching India's economic reforms in 1991, Manmohan Singh dubbed Modi government's move as "monumental mismanagement" and "organised loot and legalised plunder". His estimate, Manmohan said, was an underestimate and not an overestimate.

Supporters of demonetisation had laughed at Manmohan Singh then for exaggerating the fears of a growth slowdown. Finance Minister Arun Jaitley was quick to counter Singh's statement, saying demonetisation would have a positive impact on the GDP in the long term. "It will be prudent for any economist to look beyond the immediate impact when the demonetisation process is on and look at India post remonetisation," he shot back.

Manmohan nevertheless taunted the supporters of demonetisation: "Even those who say that this measure will do harm or cause distress in the short term but be in the interests of the country in the long run should be reminded of what John Keynes said once."

"In the long run all of us are dead," he said.

Directly challenging Modi, Manmohan Singh said, "I would like to know from the Prime Minister the names of any country he may think of where people have deposited their money in their banks, but they are not allowed to withdraw."

It seems demonetisation will impact the GDP growth longer than it was seen. Economists had expected Q1 GDP growth at 6.5 per cent. Most are now looking at revising estimates for the year. Ratings agency ICRA said the likelihood of growth surpassing 7.0 per cent in the current fiscal year has diminished after the Q1 reading. India Ratings said its forecast of 7.4 per cent GDP in FY18 will get revised downwards.