Brokerages, research houses have doubts on GDP data
The gross domestic product (GDP) data put out by the Central Statistics Office (CSO), which did not show any major impact of demonetisation in the third quarter, has taken brokerages and research houses by surprise.
They have raised doubt over efficacy of the data in capturing the impact, particularly on the unorganised sector.
According to the data, GDP grew seven per cent in the December quarter of the current financial year against 7.4 per cent in the September quarter and 6.9 per cent a year before.
Nomura, the financial advisory, says, “In our view, official GDP statistics are significantly underestimating the growth impact of demonetisation.” Data on real activity, it says, suggest consumption and services were hit because they were more cash-intensive.
However, official statistics show private consumption, fixed investment and industrial output growth all accelerated, with only the services sector witnessing a slowdown. “This does not add up,” says Nomura.
Ambit Capital says its extensive interactions with the small and medium enterprise community, as well as a cursory analysis of high frequency indicators such as bank credit growth, suggests that economic momentum markedly decelerated in the third quarter.
“We reiterate our view that even as GDP growth will pick up in the fourth quarter versus the third quarter and even as GDP growth will be higher in FY18 versus FY17, the level of GDP growth in FY18 will be lower than what would have been the case if the government had not enforced such a rapid pace of formalisation,” it says.
Edelweiss Research says the government’s role in contributing to the overall GDP has been increasing through government final consumption expenditure and gross fixed capital formation. For a developing economy like India, this could crowd out private investment, it cautions.
“Though there could be doubts regarding the data, the FY17 growth estimate of 7.1 per cent might materialise. We believe this GDP print will alter market estimates of growth positively and would benefit stocks over the medium term,” it says.
Religare Institutional Research says the CSO data shows growth in manufacturing accelerated to 8.3 per cent in the third quarter from eight per cent in the first half, which is surprising, as demonetisation would have hit December production.
It highlights the point that CSO takes into account value addition by the corporate sector while compiling Gross Value Added numbers and uses growth in manufacturing as a proxy for growth in the unorganised sector, in the absence of credible information on this segment.
“With the impact of demonetisation more pronounced for this segment versus the organised segment, usage of manufacturing IIP as a proxy implies that manufacturing gross value added (GVA) growth is overestimated,” it opines.
Nirmal Bang refers to private consumption posting robust growth and investment registering a pick-up, defying expectation of a demonetisation-led slowdown.
“Given the fact that a lot of data seems to be counter-intuitive, we expect some downward revision in the third quarter as more data, particularly from the informal sector, is captured,” it says.
As a case in point, GVA data for the first two quarters of FY17 have been revised downwards, indicating a slowing in the economy, and that was before demonetisation, Nirmal Bang says.
The International Monetary Fund recently warned that India’s growth could to slow to 6.6 per cent in 2016-17 due to the strains that had emerged as a result of “temporary disruptions” caused by demonetisation.