The Big Story: Doubtful growth

The Central Statistical Office surprised the nation on Tuesday evening when it released advanced estimates of Gross Domestic Product growth for the October-December quarter. Despite widespread economic disruption caused by the Union government’s demonetisation move on November 8, the GDP figures have registered a robust growth of 7% in the third quarter. This defies predictions by most economists that weak consumption would drag the rate down well below that figure.

The nation will now have to prepare for some chest thumping from the government and the ruling Bharatiya Janata Party, which will doubtless use these figures to justify its claim that demonetisation was unfairly demonised by the Opposition.

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“The numbers completely negate the kind of negative projections and speculations which were made about the impact of demonetisation,” Economic Affairs Secretary Shaktikanta Das told reporters after releasing the data.

It hasn’t taken long for questions to surface about the GDP estimates. The fine print has some startling claims that defy economic logic. For example, take the growth in private consumption. The figures show it increased 11% over the July-September second quarter. This when 86% of all valid currency notes were demonetised on November 8 and Indians were under tremendous pressure from arbitrary limits on bank and ATM withdrawals. How did people consume so much when there was an acute scarcity of cash?

If the figures are indeed accurate, was it because black money hoarders managed to convert their illegal cash into assets, reflecting in a surge in the consumption figure? If so, this would hit at the very core of the demonetisation argument, which was presented as the best way to obliterate India’s black economy.

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There are other leaps of logic too. Robust media coverage and anecdotal evidence have clearly established that the informal sector took a hit from demonetisation, with thousands losing jobs. Industrial growth in eight core areas slowed down to 3.4% in January compared to 5.6% growth in the same month last year. All three crucial sectors of real estate, construction and financial services have shown a marked slowdown in this quarter. Despite these hiccups, officials have claimed an overall GDP growth figure that allows India to retain its position as the fastest-growing economy in the world.

One view supporting the figures is that the demonetisation effect kicked in only after November 8, by which time half the third quarter was over, including the Diwali festive season. Usually, consumption reaches its peak during the festivals and drops dramatically post Diwali. If this is accepted, then a more accurate reading of the demonetisation effect will be available only when the growth figures for the fourth quarter come out. The BJP would do well to wait for the fourth quarter figures and not rub salt into the demonetisation wounds by celebrating prematurely with the quarter three numbers.

The Big Scroll

  • Girish Sahane tell you why the latest GDP figures are suspect.

Pundity

  1. Madhura Swaminathan in The Hindu explains why the Economic Survey’s idea of a universal income may not be the most dependable. 
  2. Supriya Chaudhuri in Economic Times argues that the recent incidents of violence on university campuses will strangle their intellectual freedom. 
  3. In the Indian Express, parliamentarian Udit Raj says the wealth of the top 1% in India is not just about hard work but also skewing of policies in their favour. 

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