A highly respected ex RBI Guv tells me in 70 years our economy never slowed due to a domestic demand slump. It was always a supply problem (oil shock, drought etc)which slowed the economy. Official documents never spoke of a demand shock in a largely untapped consumer market.
To reinforce his point the ex RBI Guv asked me to check with CEAs of past regimes whether they ever cited demand shock in as a major issue in their Economic Survey overview. I checked with two CEAs from late 1980s to late 1990s & both said demand slump was never an issue.
The question then arises as to why such a serious demand shock has visited India’s economy when 800 million people are still to consume basic comforts like refrigerators, ACs, washing machines, low end cars etc. The only answer is serious economic mismanagement!
And what would be the single biggest factor that is responsible for the demand shock resulting in a fall in average consumption expenditure & a sharp deterioration - by 5% of GDP- in household savings? No prizes for guessing. Nutty demonetisation!
