Note ban saw Modi govt deliver one of its worst performances in Dec quarter

New investment proposals during the quarter were half the average of the preceding nine quarters

The demonetisation drive that was announced during the December quarter, and has become the biggest such initiative in the world, has taken a huge toll on the Indian economy -- one that will the country a take a long time to extricate itself from.

On Monday, the Centre for Monitoring Indian Economy (CMIE) released capacity expansion data for the December 2016 quarter, in which it said, "New investment proposals worth Rs 1.25 trillion (Rs 1.25 lakh crore) were observed during the quarter ended December 2016. This is low compared to the average Rs 2.36 trillion worth of new investments seen per quarter in the preceding nine quarters of the Modi government."

Initial indications were also seen in PMI released today. The Nikkei/Markit Manufacturing Purchasing Managers' Index INPMI=ECI fell to 49.6 in December from 52.3 in November, its first reading below the 50 mark since December 2015. The 50 mark essentially separates growth from contraction. It was also the biggest month-on-month decline since November 2008, just after the Lehman Brothers collapse triggered a financial crisis and brought on a global recession.

Mahesh Vyas, MD & CEO, CMIE said, "The investment climate, which has been weak for a while, is expected to remain subdued for some more time."

It is obvious that till impact of demonetisation and follow-up measures by the government are known, industry is neither prepared to plan new investments, nor go ahead with investments already planned. The eighth edition of Vibrant Gujarat Global Summit, the first event post-demonetisation being held in Gandhinagar, Gujarat's capital, from January 10-13, may provide some indication of how India's corporate biggies and global leaders see growth potential going forward.

According to CMIE data, as many as 227 new investment proposals worth Rs 81,800 crore were announced during the first 39 days of the quarter, that is, till November 8, 2016, the day on which demonetisation was announced. In comparison, only 177 investment proposals worth Rs 43,700 crore were made during the next 53 days, between November 9 and December 31, 2016. The performance might not have been so poor, had there been no demonetisation.  

Another stark fact reflecting the impact of demonetisation, according to CMIE, is that only 404 new investment proposals were observed during the quarter ended December 2016. However, because of all government economic machineries were busy handling post-demonetisation issues, implementation of projects worth Rs 77,700 crore were stalled in the December quarter. CMIE claims this was largely due to lack of government clearances. The other major reason, of course, was an adverse business environment.