A month after Prime Minister Narendra Modi’s dramatic demonetisation announcement, it looks like a gamble gone badly wrong. On Wednesday, RBI reduced its forecast of economic growth for the financial year to 7.1%, down by as much as half a percentage point. Factories are reducing shifts, traders are inactive and consumers are cutting back. People’s productive energies are sapped by standing in endless queues to withdraw their own money. Fifteen million young people enter the job market every year, but next year could see a loss of 4,00,000 jobs.

To make matters worse, an economic slowdown is not the only fear. RBI’s recent monetary policy analysis suggests that inflationary pressure has not subsided, which is why it did not cut rates even in the face of demand contraction. Also, the global economic situation is characterised by uncertainty and can push up inflation through the channel of exchange rates. Given these economic trends, it would not be unfair to say that ‘bure din’ are here. The task of economic revival is urgent as growing frustration is inevitably accompanied by social upheaval.

The first line of response needs to come through easing of tax rates. Thus far, the NDA government has been relentless in raising indirect taxes. Now, that demonetisation has begun to compress demand, the ideal antidote would be lowering tax rates. NDA cannot afford to make the forthcoming union budget the usual lacklustre one. Instead, India’s tax rates should be made competitive with East Asian economies. Finance minister Arun Jaitley must make good his intent to lower direct tax rates to 25% and simultaneously shut down loopholes. It is time for fiscal policy to boost demand.

Lowering tax rates are just one part of the story. India is in the midst of systemic reforms such as the Goods and Services Tax. The government must roll out GST quickly and opposition must stop being obstructionist, in the interest of the country’s economy. Stamp and registration duties can be rationalised for real estate, which would not only boost this employment-intensive sector but also reduce incentives for fresh generation of black money. The demonetisation announcement may have been dramatic, but the government must do something equally dramatic to lift spirits now. The economy will get going only when animal spirits are unleashed. If people are feeling short of cash now, make them feel good again by putting money, at least, in their bank accounts.