Statistics is growth: let’s eat statistics

While the GVA/GDP data may have sprung a surprise, many other indicators point to an economy that is not investing more, not producing more and not creating more jobs

Written by P Chidambaram | Published:March 5, 2017 12:31 am
 GDP figures, GDP data, Indian economy, growth, demonetisation, Gross domestic product, india news, statistics, central statistic organisation, indian express A worker clears a furnace at an iron casting factory in Ahmedabad. (Reuters Photo)

The Central Statistics Organisation (CSO) is an honourable institution. Dr Pronab Sen, the former chief statistician, and Dr T C A Anant, the current chief statistician, are honourable men. Ordinarily, one should have faith in them. I do.

However, what should one do when they appear to contradict each other? Dr Anant, after releasing the data for the third quarter of 2016-17 (October-December), has concluded that the GDP in Q3 grew by 7 per cent and the growth rate for the whole year would be 7.1 per cent. Dr Sen, after reviewing the data, has concluded that the data is deficient and the growth rate for the whole year is likely to be revised downward to 6.5 per cent.

Whether the growth rate for the whole year turns out, finally, to be 6.5 per cent or 7 per cent, it would be a matter of satisfaction — not self-congratulation or exuberance — for the country. That, however, is not the question troubling informed observers. The question is ‘did demonetisation adversely impact economic growth?’. The CSO data did not answer that question.

Economy slowing down

The government had claimed at the beginning of 2016-17 that the growth rate would be 7.6 per cent. Suppose we assume that, after demonetisation, the growth rate will be 7 per cent. That is an adverse impact, and the cost of losing 0.6 per cent of GDP will be Rs 90,000 crore. If the growth rate falls to 6.5 per cent, the cost will be Rs 1,65,000 crore. Neither is a small sum of money. The argument that demonetisation did not — or will not — have a negative impact on the economy is hollow and puerile.

Between Dr Sen’s and Dr Anant’s, there is good reason to lean in favour of Dr Sen’s conclusion. After the changeover to the new methodology, the CSO publishes estimates of Gross Value Addition (GVA) and Gross Domestic Product (GDP). GVA is an estimate, GDP is derived by adding tax revenues and subtracting subsidies. Let’s look at the GVA growth rates during three years:

figures759

Demonetisation affected every sector of the economy except three: (1) it did not affect government expenditure and government actually increased its spending after November 8, 2016; (2) it did not affect the monsoon that was bountiful and boosted agricultural production; and (3) it did not affect the revenues of utilities because the demonetised notes were allowed to be used for paying utility bills and actually encouraged payment of old arrears. Let’s, therefore, look at the GVA growth rates after excluding government, agriculture and utilities:

figures2759

The conclusion from either table is simple and clear: economic growth in the non-government, non-agricultural economy slowed down since Q4 of 2015-16 and was on a decline in 2016-17. Demonetisation that happened in the middle of Q3 accelerated the decline.

Relevant numbers

Adding tax revenues to GVA and subtracting subsidies to arrive at GDP does not reflect higher growth. If excise duties are raised in the course of a fiscal year, as was done by the government, it will bring in more revenues, but not higher growth. If subsidies are compressed, it does not mean higher growth.

Growth is best captured by numbers reflecting greater investment, higher production and more jobs. While the GVA/GDP data may have sprung a surprise, many other indicators point to an economy that is not investing more, not producing more and not creating more jobs. Compare the GVA growth numbers in Q3 of 2015-16 and Q3 of 2016-17. In the Mining, Manufacturing, Construction, Trade/ Hotel/ Transport/ Communication and Financial Services sectors, the GVA growth number has declined sharply in 2016-17.

In Q3 of 2016-17, the Index of Industrial Production (IIP) recorded a meagre growth of 0.2 per cent. Bank credit growth to industry was negative at (-) 4.3 per cent. The ratio of Fixed Investment to GDP has declined from 29.3 per cent to 26 per cent. By September 2016, net fixed assets of all firms had declined by (-) 9.36 per cent. The average plant load factor of all thermal power plants is at 60 per cent. Yet, it is claimed that demonetisation has not affected economic growth!

Just as the GVA growth numbers for Q1 and Q2 of 2016-17 were revised downward, it is likely that the GVA growth number for Q3 of 2016-17 will also be revised downward. When data for the informal sector is also captured, the GVA growth number will be moderated and will be lower.

Unanswered questions

If the government is confident that demonetisation has not affected economic growth, why is the government not publishing the data on the outcome of demonetisation? Why have the restrictions on withdrawing our money not been lifted yet? Why is the RBI still counting the old notes in the old-fashioned way? How much of the old notes has returned to the system?

Which objectives of demonetisation have been achieved? Black money continues to be generated. Bribes are being given and taken. Terrorist incidents have increased in Jammu & Kashmir. Fake currency has made its appearance.

There are a number of questions about the GVA/GDP number. That number is not the answer to our questions about demonetisation.

Website: pchidambaram.in

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  1. P
    Prashant
    Mar 6, 2017 at 9:05 am
    Sir u and your best frnd Sibbal are among the most eminent Economist who Invented the most complex theory in economics generally known as "'Zero loss theory'',,,,,u manited1.78 lakh crore in such a manner that it bcm Zero loss,,,,,,nd today with no shame point fingers on others data,,
    Reply
    1. P
      Prashant
      Mar 5, 2017 at 7:10 am
      *tak=taj attack
      Reply
      1. P
        Prashant
        Mar 5, 2017 at 7:01 am
        Bhai what rubbish you are talking,,,,ups and down in GDP is a normal phenomenon,,,u can't equate it with monetary loss,,,,Still our GDP is fastest growing with above 7%,,,,china- 6.5%,,,,,,,, without demonetization it could have been max to max 7.1%,,,,,,,
        Reply
        1. P
          Prashant
          Mar 5, 2017 at 6:18 am
          Sir u and your best frnd Sibbal are among the most eminent Economist who Invented the most complex theory in economics generally known as "'Zero loss theory'',,,,,u manited1.78 lakh crore in such a manner that it bcm Zero loss,,,,,,nd today with no shame point fingers on others data,,,,,,
          Reply
          1. P
            Prashant
            Mar 5, 2017 at 6:20 am
            With 1.78 lakh crore,,,we could have constructed 20 highways like of "Agra lucknow express",,,or vadodara expressway
            Reply
            1. M
              M.K.BadRAWkumar
              Mar 5, 2017 at 4:43 pm
              A GDP table consisting the following should be released by Modi's CSI:lt;br/gt;lt;br/gt;1) Present GDP according to pre-2014 April formulalt;br/gt;lt;br/gt;2) Present GDP according to first revised formulalt;br/gt;lt;br/gt;3) Present GDP according to second revised formulalt;br/gt;lt;br/gt;4) Present GDP according to third revised formulalt;br/gt;lt;br/gt;5) GDP before demonetizationlt;br/gt;lt;br/gt;6) GDP after demonetizationlt;br/gt;lt;br/gt;7) GDP after Modi!!!
              Reply
              1. F
                First
                Mar 5, 2017 at 4:44 pm
                Did you capture these new parameters in 10 years of Congress rule? The only parameter was Corruption which your government didn't capture but CAG did.
                Reply
                1. G
                  Global Indian
                  Mar 5, 2017 at 1:27 pm
                  One of the most ingenious minds peoduced by the nation indeed. The quality of analysis and care and comcern for various sections of the people are highly obvious. An equivoval leader who can bring back the nation to its glorious growth path and who can truly make India a global power. Thanks sir.
                  Reply
                  1. S
                    Sambit Patra
                    Mar 5, 2017 at 3:29 am
                    Gujarath and Thamil Nadu all have started eating Pork Kabab. Chant this 5 times a day "Pork Kabab Khao, GDP Badhao"
                    Reply
                    1. S
                      Skillan
                      Mar 5, 2017 at 1:43 pm
                      What an article and what a leader? A true statesman indeed. If people like him rule nation will be safe.
                      Reply
                      1. S
                        SubbuI
                        Mar 5, 2017 at 1:06 pm
                        VERY APT AND TIMLY OBSERVATIONS BY YOU SIR AS USUAL. FULL OF FACTS AND STATISTICS.BHAKTHS WILL NOT AGREE.BUT TRUTH IS BITTER ALLWAYS TO THEM , THEY ONLY WANT DREAMS AND THEY GET ENOUGH KICK FROM NALAYAK NMODI AND SLAVE JAAT-LY,
                        Reply
                        1. T
                          TRICHIHAR
                          Mar 5, 2017 at 1:42 pm
                          A wonderful article based on original authentic reasoning? Who can argue against this sound logic? Can only say illogival thinks like hardwork / Harvard etc? You can not go on bluffing all the five years of your term like this? Yes you can fool some 31% people for some time. You can fool some people (may be 15 to 20%) one more time, but you cannot fool all the people all the time? Only the able hands of a leader like PCji can protect the nation and make it perform gloriously in the global arena.
                          Reply
                          1. V
                            Vkc
                            Mar 5, 2017 at 1:29 am
                            I paid you 10 years with my tax money to work. In 10 years you looted my money and after that you have time to write all these. You should be ashamed of what you have done to us. Where was your analysis of your own tenure? You dont have even spine to talk your mind before your lord hi family. We needed a real MAN not Blind naukar...
                            Reply
                            1. K
                              K SHESHU
                              Mar 5, 2017 at 1:54 pm
                              The statistical organisation is saffronised
                              Reply
                              1. Z
                                zizek
                                Mar 5, 2017 at 6:24 am
                                PC initially said that demonetization will result in much lower growth. When it did not happen acc. to the CSO stats, he is now saying that it will be revised downwards later on. In short, he is saying things about future and not of present because he knows that the present is just too bitter for him (and good for the common people).lt;br/gt;lt;br/gt;"That is an adverse impact, and the cost of losing 0.6 per cent of GDP will be Rs 90,000 crore. If the growth rate falls to 6.5 per cent, the cost will be Rs 1,65,000 crore." --- Even if we ume that growth rate will actually be revised downwards to 6.5% in future which, as PC has calculated, will cost Rs 1,65,000 crore, why do we forget the fact that more than Rs 3,00,000 crore was recovered from the pool of black money due to demonetization. So, in total, we had a benefit of about 1.5 lakh crore (at the least).lt;br/gt;lt;br/gt;PC also ignores the many other good effects of demonetization. Some of them are:lt;br/gt;lt;br/gt;1. The idle money which was kept in the lockers got channelized in the economy and will enhance growth because idle money doesn't contribute to the growth.lt;br/gt;lt;br/gt;2. Demonetization pushed for a less-cash economy. Financial inclusion got a boost which is good for various other things like better targetting of beneficiaries in future etc.lt;br/gt;lt;br/gt;3. Psychological impact that the govt. can take such strong steps in future too. So, whoever engages in corrupt practice will at least make sure that the money does not lie idle which will be good for economy (of course, the ultimate goal should be to eliminate black money menace). It also sensitized people on the issue of corruption and that was the reason people supported demonetization in large numbers.lt;br/gt;lt;br/gt;Amen.
                                Reply
                                1. A
                                  ak dev
                                  Mar 5, 2017 at 1:04 am
                                  Chid du is the most dishonest writer I have read.
                                  Reply
                                  1. K
                                    Kamalakanta
                                    Mar 5, 2017 at 8:17 am
                                    "why do we forget the fact that more than Rs 3,00,000 crore was recovered from the pool of black money due to demonetization. "lt;br/gt;lt;br/gt;We hope Mr Jaitly provided this data to the writer, we could not find it in any press report or media
                                    Reply
                                    1. A
                                      Anitha
                                      Mar 5, 2017 at 11:23 am
                                      But to withdraw the deposited money, the Account Holders have to: lt;br/gt;1. Reply to the notice of the I.T. Dept asking for the SOURCE OF MONEYlt;br/gt;2. Convincingly prove that the deposit is already TAX PAID lt;br/gt;-lt;br/gt;In case depositor fails, 90% of the deposited money will be deducted towards TAX PENALTY
                                      Reply
                                      1. A
                                        ansuman
                                        Mar 5, 2017 at 2:50 am
                                        Did you ever made a complain about it before?
                                        Reply
                                        1. A
                                          ashok s
                                          Mar 5, 2017 at 12:45 am
                                          Govt says we encouraging ecommerce , e correspondence but in reality everything is different . I complained about malpractice of builders to consumer helpline ' jaago grahak jaago but they say they're tooth less. Corruption will never end in country
                                          Reply
                                          1. G
                                            Gerry
                                            Mar 7, 2017 at 10:04 am
                                            Lets be objective. The accompanying picture in the article of the workman at an iron casting factory in Ahmedabad at tells its own story ! Whither uniforms for workmen,whither safety at the workplace,whither health and welfare at the workplace ? Does the average ,decent citizen of India want to ride piggy back on the misery of co-citizens working as sweated labour in factories where the provisions of the Factories Act are not even enforced as a fig leaf for profits for fat cat crony capitalism? Is it just? Is it equitable?
                                            Reply
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