Sunday, December 05, 2021

Measuring Growth

GDP figures point to a robust economy, but what matters is investments and jobs.

Written by Editorial |
March 2, 2017 12:30:59 am

If the results of the recent civic elections in Maharashtra and Odisha are any indication, the Narendra Modi government’s November 8 decision to invalidate all existing Rs 500 and Rs 1,000 denomination notes have had no political impact. But now, it seems the withdrawal of some 86 per cent of currency from circulation has had little effect on economic growth either. Latest quarterly data on national income from the Central Statistics Office (CSO) shows the country’s GDP to have expanded in real terms by 7 per cent during October-December year-on-year. But more interesting is manufacturing and private final consumption expenditure: These have recorded annual growth rates of 8.3 per cent and 10.1 per cent during October-December, as against their respective rates of 6.9 per cent and 5.1 per cent for the previous quarter. In other words, manufacturing and private spending, far from suffering any setback, have registered strong rebound in a quarter where the effects of demonetisation would have been palpable, if at all.

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All of this would obviously fly against ground reports of production ceasing in industrial clusters from Ludhiana, Tirupur and Ichalkaranji to Morbi, Agra and Noida, alongside retrenched workers from factories and construction sites returning to their homes in Bihar, Odisha or Bundelkhand. Nor do they square up with other data indicators relating to industrial credit, automobile and two-wheeler sales or residential unit bookings across cities; all of these have registered clear negative growth since November. The CSO data, in fact, render even the government’s own assessment at least until recently — of demonetisation causing a “temporary” blip in a couple of quarters and thereafter leading to a “V-shaped” recovery — irrelevant: If growth has been robust in October-December, why debate the impact of demonetisation?

There is bound to be scepticism over the CSO’s latest estimates. This would be even more after the Economic Survey pegged GDP growth for 2016-17 at 6.5 per cent, down from 7.6 per cent last year. The CSO, by contrast, expects only a small dip from 7.9 per cent to 7.1 per cent for the entire fiscal. It is worth recounting the Survey’s note of caution here: According to it, recorded GDP growth may understate the overall impact of demonetisation because the most affected parts of the economy — informal and cash-based — are either not captured in the national income accounts or to the extent they are, their measurement is based on formal sector indicators. That caveat needs to be factored in along with another important takeaway from the CSO data, which pertains to gross fixed capital formation. The latter — an indicator of investment activity that leads to job generation in the economy — has expanded by a mere 3.5 per cent year-on-year in October-December. And that’s the real concern today, whether or not we believe that overall GDP growth is 7 per cent plus.

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