Economists, bankers dismiss GDP growth despite demonetisation

Prime Minister Narendra Modi was quick to crow in the poll meetings in Uttar Pradesh about 7% GDP growth in the third quarter of 2016-17 and Finance Minister Arun Jaitley touted it as a slap on the critics of the government's demonetisation move claiming crippling impact on the economy.

The economists have, however, lost no time in pointing out how the Central Statistics Office (CSO) "cooked up" the numbers to show the growth rate in the post-demonetisation third quarter look rosier that the reality. They said the data was concocted by underplaying the GDP estimate for the third quarter of the previous year of 2015-16 to Rs 28,30,760 crore, instead of the original estimate of Rs 28,52,339 crore put out in February last year.

If the original GDP estimate for the relevant period in 2015-16 had been used in the calculations, the GDP growth in the third quarter of this fiscal would be just 6.2 %, said the economists while insisting on their prediction of a sharp fall in India's GDP growth due to demonetisation.

Forget the economists, even many commercial banks, led by the State Bank of India, were quick to assert that the GDP growth rate was unnaturally high and could be revised down. The SBI agreed with the economists that the impact of demonetisation was masked by a drastic downward revision of the GDP numbers for the third quarter of the previous financial year to claim higher growth in the third quarter of 2016-17.

Soumya Kanti Ghosh, group chief economic adviser of SBI, put out a research note to slam CSO's figures and showed why they were totally faulty. "Growth rates in construction and finance sub-segments are at a 7-quarter low and at an all-time low, respectively, in the current base year. But what is intriguing is that growth rates of these segments show significant recovery in Q4.

With cement despatches for January 2017 declining by a whopping 13 %, it is not clear how construction activity is reviving in Q4FY17," adds his note.

There is another giveaway in the CSO statistics.

The government's statisticians calculate GDP in two different ways: first on the production side and then on the expenditure side.

On the production side, it first calculates the gross value added - a measure of the value created in the entire production cycle from raw material to finished product - and then adding net indirect taxes to obtain the GDP figure.

On the expenditure side, it tots up expenditures in the private sector, the government sector, gross fixed capital formation, change in stocks, valuables, and exports minus imports to obtain the GDP figure.