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Indian Economy In Recession Thanks To Demonetisation, Says Economist Arun Kumar


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Three years after Prime Minister Narendra Modi forcibly implemented demonetization, the Indian economy has entered a full-blown recession, said economics professor Arun Kumar, widely considered to be an authority on black money in India. The controversial decision, announced in a surprise speech by Modi in November 2016, affected the unorganised sector so adversely that the overall Indian economy is not growing any more, he said in an interview.
Kumar, who has been researching on black money in India for the past four decades, also said that far from addressing the problem of black money, demonetisation created new avenues for earning “black incomes”.
“Some people were taking their own notes and converting into new notes and generating fresh black income,” he said.
An economy is said to be under recession if it registers negative growth for two consecutive quarters. In Kumar’s view, India has been under a recession for three years. But it was not visible thus far because the organised sector was growing at 7% or thereabouts so the government could claim India was the fastest growing big economy, he said.
But now that the unorganised sector’s woes, which began with demonetisation, have hit the organised sector as well, the overall Indian economy is in a negative rate of growth.

“You have a negative rate of growth at the moment rather than a positive rate of growth. So it’s not 4.5% or 5% or 5.8%, it’s -1%,” he said.
The former JNU professor said that the effect of demonetisation on the unorganised sector is continuing to play out even today.

Kumar, who currently teaches at the Institute of Social Sciences in New Delhi, said the current state of the economy is being called a “slowdown” because people look only at the official government figures about the growth of the Gross Domestic Product, which capture data only for the relatively better-off organised sector.

If you take the unorganised sector into account, our rate of growth became negative during that period of demonetisation and for months after that. And it has remained zero or negative right through. If you take only the organised sector into account, then there is a slowdown. But if you take the unorganised plus organised sector into account and look at alternate data, then we have been in a recession for the last three years, not a slowdown,” he said.

The Malcolm S. Adiseshiah Chair Professor also said finance minister Nirmala Sitharaman’s announcement last week of a multi-crore package for the real estate sector will neither help the sector nor the economy emerge from its core problems. Announcing one package after another, as the finance ministry has been doing, shows “panic”, he added.


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