ALLEGING that the Government was giving out deceptive numbers on economic growth, Congress leaders today put a question mark on the Central Statistics Office (CSO) estimate of a 7 per cent GDP growth rate in the fiscal third quarter (Q3, October-December 2016). However, most economists The Indian Express spoke to, including previous Chief Statistician Pronab Sen, said that such conclusions were a case of jumping the gun — and that a more accurate picture would emerge as data gets further refined and revised. “The CSO has made no mistake. Its estimate is based on specific assumptions and it is not allowed to fiddle with these assumptions,” said Sen. “For any change in methodology, it has to approach the Advisory Committee on National Accounts.”
Sen and other economists agree that the cash-intensive informal sector had taken a hit following the withdrawal of almost 86 per cent of currency in circulation in the midst of the third quarter. Even the Economic Survey had estimated the economy to lose 0.25-0.5 percentage points assuming a baseline 7 per cent growth rate for the financial year. But that didn’t mean the CSO data was defective, experts said. “With demonetisation,” Sen said, “the continuity assumption gets violated. Demonetisation was a great disruptor. It severely hit the informal sector — there is no way of factoring this into the existing methodology.” Sen is now India Director with International Growth Centre, a think tank that aims to promote sustainable growth. T C A Anant, who is Chief Statistician now, replaced Sen in June 2010.
Economists believe that as data gets refined in coming months, it is likely that these numbers are revised. “The economy would have got hurt. Anecdotal evidence suggests cement sales decreased, footfalls in restaurants dropped, and so did automobile sales. The first estimates of GDP do not capture the disruption. As more information becomes available, a downward revision is possible,” said D K Joshi, Chief Economist, CRISIL. What’s added to the confusion are different scenarios painted by say, the manufacturing GDP data, and the index of industrial production. “The manufacturing GDP shows sharp growth whereas IIP during April-December dipped 0.5 per cent,” he pointed out.
Many analysts do not take quarterly growth estimates quite seriously because of lack of available data with the CSO. “Almost 45 per cent of the GDP is informal. The CSO uses different proxies to estimate GDP. For instance, sales tax collections is taken as a proxy for the trade sector. Here, if states post robust sales tax growth, the trade sector growth will reflect it. The CSO doesn’t get influenced by anyone. Yes, we should discuss how quarterly GDP data can be arrived at to make it more useful,” said Neelkanth Mishra, India equity strategist, Credit Suisse.
Some economists point to pent-up rural spending following a normal monsoon after two consecutive years of drought and advance spending and even blowing up of money before December 30, (the demonetisation deadline) by those who had cash, as reasons why consumption may not have been so adversely impacted as expected initially. “Two things come to mind. People advanced spending. What they could have done over three-four months, they did it quickly. Second, many blew up money. Anecdotal reports suggest that people bought substantial quantities of gold, or even made high-value purchases,” said Sudipto Mundle, economist and member of the board of governors of NIPFP, an economic think tank.
“Also, there has been a shift from the informal to the formal. In truth, India’s GDP fell, but some people have been quick to jump the gun to say CSO is doing the bidding of North Block. They are wrong,” said Ajay Shah, Professor, NIPFP. Like IGC’s Pronab Sen, L&T Finance Holdings’s Group Chief Economist Rupa Rege-Nitsure also believes the impact of demonetisation on the unorganised sector and the agrarian and rural belt have not been captured.
“While the second advance estimates show GDP growing at 7.1 per cent, the Gross Value Added (GVA) has shown a loss of 110 basis points to 6.7 per cent this year compared with 7.8 per cent last year. There are several issues with GDP data. It is no more a credible number,” Rege-Nitsure said. Putting the third quarter estimates in perspective, Devendra Pant, Chief Economist, India Ratings & Research, said, that for two years rural economy was down. “With a good monsoon and lower inflation boosting purchasing power, it is likely people spent more during Q3. Government salary also saw upward revision. And not to forget, demonetisation happened after two major festivals. People spent not knowing demonetisation will be announced soon. These could be plausible reasons for the 7 per cent GDP growth estimate for October-December 2016,” he said.
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