Data released by the government today showed that India's Gross Domestic Product (GDP) fell to a three-year low of 5.7 per cent in the April-June quarter of financial year 2017-18. This was a drop of 0.4 per cent point compared to the previous, January-April, quarter when the GDP grew by 6.1.

The drop, however, was much higher compared to the corresponding April-June quarter of FY 2016-17, when GDP growth was registered at 7.1 per cent.

Notably, former Prime Minister Manmohan Singh had once predicted that demonetisation would cause a fall in GDP growth. Days after PM Narendra Modi's shock demonetisation announcement, Manmohan Singh, in a hard-hitting Rajya Sabha speech, said that he foresaw fall of two per cent points in India's GDP growth as a result of the note ban exercise.

According to data from the Central Statistics Office (CSO), the GDP for Q1 2017-18 stood at Rs 31.10 lakh crore, or a growth of 5.7 per cent, compared with 6.1 per cent in the fourth quarter of the last fiscal.

The fall in GDP growth comes against the backdrop of an Indian economy that is recovering from the effects of the shock demonetisation move last November and the introduction of the Goods and Services Tax. The data release also came a day after the RBI, in its annual report, said that nearly all of the demonetised currency had returned back to the banks.

Opposition and critics of the government alike are certainly going to use the fall in GDP numbers as an opportunity to target the Narendra Modi administration over demonetisation and GST.

Manmohan Singh, former prime minister of India and world-renowned economist, was one of the first people to say that demonetisation would have a negative impact on the Indian economy.

Speaking in Rajya Sabha on November 24 - just two weeks after Prime Minister Narendra Modi announced demonetisation in a primetime television address - former PM Manmohan Singh tore into the government with a searing speech (watch full speech) that called the note ban exercise "a monumental management failure" and a case of "organized loot and legalized plunder of the common people."

"I am reminded of John Keynes, who once said, 'In the long run, we are all dead'," Manmohan Singh said in response to those "who say that this measure will do harm or will cause distress in the short run, but is in the interest of the country in the long run".

'GDP WILL FALL'

Halfway through his Rajya Sabha address on demonetisation, Manmohan Singh warned that the move would negatively impact the Indian economy. "I would further like to point out that, in my opinion, this scheme of demonetization, the way it is being implemented, will hurt agricultural growth in our country; will hurt small industry; will hurt all those people who are in the informal sectors of the economy," he said before going on to predict that the note ban exercise could result in a 2 per cent drop in India's GDP growth.

"My own feeling is that the national income, that is, the GDP of the country, can decline by about two percentage point as a result of what has been done," the former PM had said. "This is an underestimate and not an over estimate."

The days after the demonetisation announcement saw citizens face hardship in withdrawing cash from their bank accounts (File photo) Click here to Enlarge The days after the demonetisation announcement saw citizens face hardship in withdrawing cash from their bank accounts (File photo)

Manmohan Singh also criticised the manner in which rules regarding how and how much money citizens could withdraw from banks changed on a near-daily basis in the days and weeks following demonetisation.

"It is no good that every day the banking system comes with modification of the rules, the conditions under which people can withdraw money," Manmohan Singh said. "That reflects very poorly on the Prime Minister's Office, on the Finance Minister's Office and on the Reserve Bank of India. I am very sorry that the Reserve Bank of India has been exposed to this sort of criticism, which, I think, is fully justified."

FULL SPEECH

Here is the full text of ex-Prime Minister Manmohan Singh's full speech in Parliament on demonetisation (courtesy Congress Sandesh):

Mr. Chairman, I rise to highlight some of the problems that have arisen after the decision to demonetise 500 rupee and 1,000 rupee currency notes. The Prime Minister has been arguing that this is the way to curb black money, to prevent growth of forfeited currency notes and also to help in control of terrorist finance activities.

I do not disagree with these objectives, but what I do want to point out is that in the process of demonetisation, monumental mismanagement has been undertaken upon which today, there are no two opinions in the country as a whole. Even those who say that this measure will do harm or will cause distress in the short run, but is in the interest of the country in the long run, I am reminded of John Keynes, who once said, "In the long run, we are all dead".

And therefore, it is important to take note of the grievances of the people, the ordinary people, who have suffered as a result of this imposition on the country overnight by the Prime Minister, and I say so with all responsibility that the outcome which we do not know what the final outcome will be, the Prime Minister has said that we should wait for 50 days. Well, 50 days is a short period, but for those who are poor and deprived sections of the community, even 50 days torture can bring about disastrous effect, and that is why, about 60 to 65 people have lost their lives, may be even more.

And what is more, what has been done can weaken and erode our peoples' confidence in the currency system and in the banking System. I want to know from the Prime Minister the name of any country he may think of where people have deposited their money in the bank but they are not allowed to withdraw their money. This alone, I think, is enough to condemn what has been done in the name of greater good of the people. And, Sir, I would further like to point out that, in my opinion, this scheme of demonetization, the way it is being implemented, will hurt agricultural growth in our country; will hurt small industry; will hurt all those people who are in the informal sectors of the economy.

My own feeling is that the national income, that is, the GDP of the country, can decline by about two percentage point as a result of what has been done. This is an underestimate and not an over estimate. Therefore, I feel that the Prime Minister must come with some constructive proposals as to how we can implement the scheme and, at the same time, prevent the distress that has been caused to the common people. It is no good that every day the banking system comes with modification of the rules, the conditions under which people can withdraw money. That reflects very poorly on the Prime Minister's Office, on the Finance Minister's Office and on the Reserve Bank of India. I am very sorry that the Reserve Bank of India has been exposed to this sort of criticism, which, I think, is fully justified.

I, therefore, would not like to say much more than this. I urge upon the Prime Minister to find practical, pragmatic ways and means to relieve the distress of the people, who happen to be a great majority of our people. After all, 90 per cent of our people are in the informal sector. Fifty-five per cent of our workers in agricultural sector are reeling under distress.

The cooperative banking system, which serves a large number of people in the rural areas, is nonfunctional and has been prevented from handling cash. So, all these measures convince me that the way the scheme has been implemented, it is a monumental management failure and, in fact, it is a case of organized loot and legalized plunder of the common people. Sir, with these words, I conclude. It is not my intention to pick holes in what one side does or what another side does. But I sincerely hope that the Prime Minister will even, at this late hour, help us to find practical, pragmatic ways and means to provide relief to the suffering people of this country. Thank you.

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