Modi needs to fulfil India’s potential

Narendra Modi came to power in India on a promise of economic revival, pledging to sweep away bureaucracy, improve infrastructure, draw in foreign investment and create jobs. Almost three years on, most of these promises remain unfulfilled. Instead, the prime minister gambled on a radical experiment with demonetisation to restore his reputation as a reformer.

The decision to scrap 86% of the bank notes circulating in India’s cash-reliant economy overnight was a reform of such extravagant ambition that it seemed designed to prove Modi had lost none of his zeal for action. Now, however, he must convince voters going to the polls in state elections that the ban’s benefits will outweigh the immense hardship it has caused.

So it is understandable that he should seize on official data suggesting the disruption to India’s economy has been less damaging than many had warned, with growth slowing only slightly in the final quarter of 2016. Modi took the opportunity for a dig at some of his more illustrious critics, saying the data showed his “hard work” to change the economy was more powerful than the Harvard pedigree of intellectuals such as Amartya Sen. But Modi is too swift to claim vindication.

There are many reasons why this early data may not accurately reflect the effects of the cash crunch. Changes in methodology may have flattered the figures. A good monsoon and a rise in public sector pay may have boosted consumer spending on the Diwali holiday in October, offsetting a later slowdown. Businesses who needed to declare and offer a legitimate explanation for large holdings of illicit cash may have overstated sales.

Moreover, the figures are unlikely to capture the parts of the economy most affected by the cash crunch — unregistered businesses that had to stop trading and migrant labourers who had to return home when employers were unable to pay them. London, March 6.