Economists and opposition politicians have voiced deep scepticism over the government’s claim that India’s gross domestic product registered seven per cent growth during the third quarter of the current financial year, as against 7.3 per cent during the previous quarter.
The figure suggests that the demonetisation of high-value currency notes, announced on November 8, did not hit the economy as badly as was anticipated. As much as 86 per cent of the currency in circulation had ceased to be legal tender on that date. This resulted in disruption of economic activity in many sectors for several weeks.
The Central Statistics Office put the GDP for the quarter ending on December 31, 2016 at Rs 30,280 billion, as against Rs 28,310 billion for the corresponding period of FY 2015-16. On the basis of these figures, it estimated that the GDP growth for the year ending on March 31, 2017 will be 7.1 per cent as against 7.9 per cent for the previous year.
The Reserve Bank of India and the International Monetary Fund had reckoned that demonetisation would reduce the current year’s GDP growth rate by one per cent.
Prime Minister Narendra Modi, addressing an election meeting in Uttar Pradesh, said the CSO data proved that the people of India did not allow demonetisation to hamper the country’s development.
The opposition Congress party’s spokesman debunked the claim, citing figures of decline in bank credit to industry and contraction in industrial production.
Former Jawaharlal Nehru University Professor of Economics Arun Kumar said CSO’s GDP calculation was invalid as it did not take into account data relating to the informal sector which bore the brunt of demonetisation. This sector, he pointed out, accounted for 45 to 50 per cent of the output of the Indian economy.
Some economists expressed doubts over CSO’s finding that private consumption had increased by 10 per cent during the quarter. They said the cash crunch in the wake of demonetisation had actually brought consumption down.
Surveys done by the State Bank of India and trade bodies had indicated that demonetisation had hit the growth of the unorganised sector to the extent of 30 to 40 per cent.
Chief Statistician TCA Anant, while releasing the CSO data, had admitted that in the absence of sufficient data it was difficult to assess the impact of demonetisation. “Policies such as demonetisation are difficult to assess without a lot of data, which is still to come in,” he said.
India calculates GDP primarily on the basis of activity in the formal sector which accounts for only about 15 per cent of the economy. The CSO surveys the grey areas of the economy periodically. Often it interpolates data from old surveys into the GDP calculation.
India has attracted the charge of fudging GDP figures from time to time. In 2015, the government modified the way GDP is counted. As a result that year the GDP growth shot up to 7.3 per cent from 5.5 per cent, and the government declared the economy had turned the corner.
The then RBI Governor, Raghuram Rajan, likened the new methodology to two mothers babysitting each other’s child and paying for the service. “There is a rise in economic activity as each pays the other, but the net effect on the economy is questionable,” he said.
The US State Department’s Bureau of Economic and Business Affairs said that while India’s economy was one of the fastest growing the depressed investor sentiment suggested that the approximately 7.5 per cent growth rate might be an overstatement.
Since the new methodology for calculating GDP was adopted India had appeared to be the world’s fastest growing big economy, outpacing China, “but scepticism about the data is growing even faster,” the Economist wrote. It added, “A cottage industry has sprung up to cater to the sceptics, bending various indicators of economic activity to produce new gauges of growth.”
Reliability of GDP data is a global issue. Two years ago, World Economics, a research firm in London, developed a data quality index to make people aware that GDP means different things in different countries. In its 2016 index, two Asian countries, Hong Kong and Singapore, figure among the 10 countries with the most reliable GDP figures. India is at the 53rd place and China at the 63rd.
Many observers are inclined to wait for the revised GDP estimates, which may come in about six months, to get a correct picture of the state of the economy. -- Gulf Today, Sharjah, March 7, 2017.