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3 years of demonetisation: How much has Indian economy changed?

Manoj Sharma     November 8, 2019

Today marks the third anniversary of demonetisation when Prime Minister Narendra Modi made a surprise announcement to invalidate old Rs 500 and Rs 1,000 notes. The decision had wiped out 86 per cent of the total currency from circulation. Three years down the line, India's economy has seen a lot of turbulence with GDP growth going down to six-year-low, fiscal deficit growing significantly, and various sectors, including auto and manufacturing, facing crises.

Let's look at how the Indian economy has fared since demonetisation:



India's GDP has decreased from 8.8% (July-September 2016) to 5% (July-September 2019). Since the Modi government came to power in 2014, India's GDP growth declined by 3.19 per cent, indicating deep unrest in the economy. Under the Modi government, GDP had also risen to its highest in March 2016 quarter at 9.9 per cent. SBI in its recent report has said India's GDP in Q2 would go down further to below 5 per cent amid a decline in consumption, weak investments and an under-performing service sector.

Also read: Demonetisation's 3rd anniversary: Moody's lowers India's outlook to 'negative'; economy's fundamentals robust, says govt

Fiscal deficit


India's fiscal deficit is growing every year since the Modi government came to power in its first term in 2014. In FY 2014, India's fiscal deficit -- the difference between government's total revenue and total expenditure -- was Rs 5.05 lakh crore, while in FY 20, it has breached the Rs 7 lakh crore mark. Fitch Solutions recently raised India's fiscal deficit forecast to 3.6 per cent of the GDP for this fiscal year, from 3.4 per cent previously, due to weak revenue collections from sluggish economic growth and government's sweeping corporate tax rate cut.

Index of Industrial Production


India's Index of Industrial Production (IIP) has declined from 5.6 per cent YoY in June 2014 to 2.95 per cent in June 2019 quarter. The IIP defines the growth of various sectors, including mining, electricity and manufacturing. Since demonetisation, IIP has dropped by 1.54 per cent from 4.49 per cent in September 2016 to 2.95 per cent in the June quarter. India's industrial output in August declined by 1.1 per cent due to a slump in manufacturing and electricity generation sectors.

Foreign Investment Inflows


Foreign Investment Inflows have seen a significant rise since the start of Modi government's first tenure in 2014. While FII was $8.2 billion in June 2014, it has now gone up to $17.3 billion in June 2019. Since demonetisation, FII has increased from over $13.9 billion in September 2016 to $17.3 billion in June this year.

Also read: Decoding Slowdown: FDI inflows trend shows all's not well; growth drops to single digits



India's forex reserves have increased from $314 billion in September 2014 to $433 billion in September this year. Since demonetisation, forex reserves increased by $61 billion to $433.6 billion (8.26 per cent change YoY) on September 27, 2019. Expressed in US dollar terms, the foreign currency assets include the effect of appreciation or depreciation of non-US units like the euro, pound and the yen held in the foreign exchange reserves.

Also read: Fitch raises India's FY20 fiscal deficit forecast to 3.6% of GDP

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