After Indian Prime Minister Narendra Modi abruptly banned 86% of India’s cash bills in November as part of a crackdown on “black money,” most experts predicted a serious slowdown in India’s economic growth. Yesterday, however, the latest quarterly numbers came in, and the outlook is surprisingly rosy. Financial Times:
India’s economy grew 7 per cent year on year in the three months to December, according to official figures released on Tuesday, down only slightly from 7.4 per cent growth in the previous quarter. A Reuters analysts’ poll had forecast growth of 6.4 per cent for the October-December period.
Indian officials said the data vindicated their claim that the dramatic ban on 86 per cent of the country’s cash — part of a crackdown on illicit and unaccounted wealth — would have only a temporary economic impact. The government estimated the economy would grow 7 per cent in the current financial year, ending in March.
“The number completely negates the negative speculations you have made about the impact of demonetisation,” Shaktikanta Das, a finance ministry official, told journalists.
The Modi administration is naturally doing a victory dance after the upbeat growth forecast. And while some experts are disputing the official statistics, arguing that they underestimate the ban’s disruptive effect on informal enterprises, Modi has already seized control of the narrative to vilify the expert economists who have questioned the policy. The Hindustan Times:
Prime Minister Narendra Modi mocked economists and said on Wednesday “hard work is more powerful than Harvard” as the latest GDP data shows demonetisation did not affect growth rate and the figures have improved.
“On the one hand are those (critics of note ban) who talk of what people at Harvard say and on the other hand is a poor man’s son who through his hard work is trying to improve the economy,” he said at an election meeting in Maharajganj.
Modi’s populist stance here is not exactly new; he has long crafted an image as a scrappy, hard-working man of the people who is unafraid to rail against the status quo. In some ways, Modi was an early adopter of a formula that Trump would embrace in the United States, running as a brash, charismatic and business-savvy populist. Modi may alarm bien pensant types with his outspoken nationalism and populist rants against elites, but his take-no-prisoners attitude clearly resonates deeply with his base.
And so far, the formula still seems to be working: Modi’s BJP party is pulling ahead in the crucial Uttar Pradesh state elections, which are shaping up as a referendum on his rule.
The good growth numbers could further boost Modi and give him fresh ammunition against his critics. It is possible, of course, that those critics are right and the bullish numbers obscure a gloomier economic reality, but for now, Modi appears to be vindicated. If the fallout from the cash ban continues to be less severe than expected, BJP could manage a convincing victory in Uttar Pradesh that will further strengthen Modi’s standing.