India’s Shock Therapy Has Some Serious Side Effects

Over the past year the government of Prime Minister Narendra Modi has administered two rounds of shock therapy to India’s $2 trillion economy. In November it banned high-denomination currency notes as a way to combat the country’s notorious corruption and tax evasion—and the vast shadow economy the two vices sustain. This summer, Modi’s government rolled out the biggest tax system overhaul since India’s independence, promising it would lower costs for companies.

While both moves may pay off in the long run, their toll on the economy has been higher than initially anticipated. Data released on Aug. 31 show that growth slowed to a rate of 5.7 percent in the three months ended June 30, from 7.9 percent a year earlier, the weakest pace since 2014, when Modi came into power pledging to spark faster growth with a package of business-friendly policies dubbed Modinomics.