ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Quarterly GDP Estimation

Can It Pick Up Demonetisation Impact?

The latest quarterly estimates of gross domestic product by the new National Accounts Statistics methodology are once again in the news for the wrong reasons. With inadequate accurate information available on a quarterly basis, the estimates hardly represent the state of the economy and reflect the effects of demonetisation over the October–December 2016 period.

In principle, demonetisation—which in the recent case meant sucking out 86% of the value of cash in circulation, leading to a sharp contraction in money supply—would reduce economic activity in the short run. As critics of demonetisation have argued, it has led to a massive retrenchment of workers and reduction in production, particularly in the unorganised (or informal) sector accounting for over 90% of employment and over half of domestic output and which is also a sector in which transactions are almost entirely based on cash. Demonetisation’s proponents, however, have contended that it would cleanse the economy of black money, make transactions more formal and digital, hence improve tax collection, and enhance long-term growth prospects.

Since the demonetisation on 8 November 2016, numerous news reports and some quick surveys have demonstrated its widespread adverse impact most of all on daily wage workers. Many large consumer goods firms (such as Nestlé) and industry associations (such as the one of cement producers) have also reported a steep decline in quarterly sales. Financial brokerages and credit rating agencies have variously forecasted 1%–2% fall in domestic output in the third quarter (Q3), that is October–December 2016, as a result of the policy shock. Dismissing such claims as anecdotal, the government took credit for speedy replenishment of the new currency notes, reportedly restricting economic loss and hardship for the poor.

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Updated On : 14th Mar, 2017
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