WHEN the CSO had released advance estimates of GDP for the October-December quarter of 2016-17, within which demonetisation had occurred, the fact that the economy had still shown a 7 per cent growth rate, had been an occasion for much celebration in government circles. It had been used by the government to argue that, contrary to the claims of the critics, demonetisation had not hurt the economy.

Even then however it had been clear that a major reason for this 7 per cent growth figure was a downward revision of the third quarter GDP estimate for 2015-16, the base on which the third quarter growth for 2016-17 was calculated. (All growth calculations take the figure for the corresponding period of the preceding year as the denominator). A retrospective revision of the base in short had artificially boosted the growth rate figure. Besides, the full impact of demonetisation, it was pointed out, would take time to manifest itself.

The fourth quarter (January-March) GDP estimates released by the CSO a few days ago indeed show a significant slowing down of growth, to 6.1 per cent for this quarter. Even this statistic however does not fully capture the slowing down of the economy. The GDP figure is compiled at market prices and hence includes net indirect taxes levied by the government; it does not accurately reflect production trends. To capture the latter we have to look at figures of gross value added. And these show a 5.6 per cent growth over the fourth quarter of 2015-16, down from 6.7 per cent in the third quarter. The corresponding growth figures for the third and fourth quarters of 2015-16 were 7.3 per cent and 8.7 per cent respectively, which means a whopping 3.1 per cent drop in the growth rate figure in the fourth quarter compared to a year ago.

Even this drop however does not adequately capture the jolt to the economy because of demonetisation. Quite apart from the fact that none of these figures properly cover the petty production sector, where the impact of demonetisation has been most severe, there is an additional factor to consider. After two successive drought years, 2016-17 was a year of recovery for agriculture. While demonetisation might have had some adverse impact towards the fag-end of the agricultural year, the favourable weather conditions generally kept up agricultural output during this year. In the fourth quarter for instance agricultural output grew by 5.2 per cent over the previous year, compared to 1.5 per cent in the corresponding quarter of 2015-16. Now, if agriculture is taken out of the reckoning altogether, then we find that the fourth quarter growth for the non-agricultural sector, where the impact of demonetisation would have been felt most pronouncedly, slipped from 10.5 per cent in 2015-16 to 5.7 per cent in 2016-17, which is a dramatic collapse.

The gross value added figures for individual sectors in fact bear this out.Construction, which is highly employment-intensive, actually shrank by 3.7 per cent, and manufacturing grew by only 5.3 per cent in the fourth quarter. (The manufacturing growth rate figure according to the new method of calculation is likely to be an overestimate for all quarters, but comparisons across years can nonetheless be made). All these fourth quarter growth rate figures for 2016-17 are in fact much lower than the figures for the earlier quarters, and also for the preceding year.

Taking the annual figure, we find that gross value added increased in 2016-17 by 6.6 per cent, which was a drop from the 7.9 per cent recorded for 2015-16. This is quite remarkable because agriculture which had recorded a growth rate of 0.7 per cent in 2015-16 grew by 4.9 per cent in 2016-17. Again if we take agriculture out of the reckoning, then we find that the rate of growth of the non-agricultural sector was 9.7 per cent in 2015-16 and fell to 7 per cent in 2016-17, which is a pretty sharp drop.

There can be little doubt therefore that demonetisation had a significant adverse impact on the economy, exactly as the critics had anticipated when it was announced. At the same time however it would be a serious error to see the entire slow-down of growth in the Indian economy in 2016-17 as a consequence of only demonetisation, as some neo-liberal economists are suggesting. The slow-down began long before demonetisation, but demonetisation greatly accentuated it, whence it also follows that even when re-monetisation has been completed, the growth-rate will never again bounce back to the levels reached earlier. This is because the neo-liberal order has reached a dead-end, where stagnation, interrupted only occasionally and transiently by asset-price bubbles, will be the new “normal”; and countries like India, unless they break out of the neo-liberal regime, which must mean a degree of de-linking from globalisation, will also be caught in this stagnation.

The revised estimates of GDP growth for the four quarters of 2016-17 (over the corresponding quarters of the previous year), were: 7.9 per cent, 7.5 per cent, 7.0 per cent and 6.1 per cent. While one has to be careful comparing growth rates across quarters (since each is calculated over the GDP figure one year ago, and those base year figures may have moved in all sorts of ways), it is clear nonetheless that there is a distinct slowing down of growth through the year. In fact many see the economy as slowing down from the second quarter of 2016-17 onwards, which is striking as it has occurred despite a remarkable increase in agricultural growth.

Of course, peasant agriculture, like other spheres of petty production, has been a victim of the neo-liberal regime, under which the State has done the following things: it has withdrawn support from this sector allowing its profitability to decline; it has made it vulnerable to world price fluctuations; and it has exposed it to a direct relationship with agribusiness and domestic and foreign monopolists. The impact of all these changes has been felt on agricultural growth, so much so that even if we ignore the two drought years 2014-15 and 2015-16, and compare 2013-14 directly with 2016-17, we still find that the per capita income of the agriculture-dependent population has stagnated or even marginally declined between these two years ( See “A Simple Arithmetic”, People’s Democracy, May 27). The Modi government has been totally complicit in this squeeze on the peasantry, which has claimed three lakh peasant lives through suicides, because the Modi government has been unthinkingly neo-liberal, and hence ultra-neo-liberal.

What happens to the GDP in the non-agricultural sectors depends generally on the level of demand for these sectors’ products. Since demand also comes from the output of these sectors themselves, which put incomes in the hands of those engaged in their production, it is the autonomous or exogenous element of demand for these sectors’ output that is the crucial determinant of this output.

A part of this autonomous demand of course comes from the agricultural sector; but since per capita incomes of the agriculture-dependent population have hardly increased at all, this source of demand has been stagnant in absolute terms. The two other autonomous elements are net exports and government expenditure (since investment responds to the growth of demand and therefore is not really autonomous; and even though consumption has an autonomous element, this element changes only slowly over time). Now the stimulus from exports per se is waning because of the impact of the world economic crisis, and also because, superimposed upon this crisis is Donald Trump’s protectionism which amounts to exporting unemployment and recession from the US to economies like India. On the other hand, the stimulus from the drop in the value of imports owing to the oil-price fall could have boosted domestic demand, but the government has used this fall for garnering larger revenues through excise duty-hikes, while not letting  petro-product prices fall for the consumers.Hence the stimulus to demand from net exports (exports minus imports) has been waning.

In this situation one would have expected the government to spend more to boost domestic demand to ward off a slowdown in growth. But total central government expenditure has increased in nominal terms, during the Modi years, at a rate that is lower than the rate of increase in nominal GDP, which means that far from stimulating the economy central government expenditure has played the role of dampening the economy still further.The rate of increase in total central government expenditure has been 6.7 per cent in 2014-15, 7.6 per cent in 2015-16, and 12.5 per cent (for implementing Pay Commission recommendations) in 2016-17 (RE). The budget estimate for 2017-18 visualises only a 6 per cent increase. Since the nominal GDP has been rising at a rate in excess of 12 per cent on average, it follows that government expenditure has not even kept pace with GDP, let alone providing an autonomous stimulus to its growth.

Faced with the crisis of neo-liberalism in other words, the Modi government, instead of trying to counter the crisis by acting in some manner that is different from what neo-liberalism demands, has become even more ultra-neo-liberal, even more of an obedient servant to international finance capital. Unthinking adherence to neo-liberalism, together with occasional unthinking “macho” acts like demonetisation (which by no means challenge neo-liberalism), are the hall-mark of this government. This trait springs from the fact that it is an unthinking government, indeed a government incapable of thought, because the “leader” who demands sycophantic applause, lacks the wherewithal for such thought. International finance capital always loves such governments in the third world, since they remain intellectually parasitical upon the “global financial community”.