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

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Growth Guesstimates

India’s economy is stumbling, but “alternative facts” suggest high growth despite demonetisation.

The Central Statistics Office (CSO) has estimated India’s gross domestic product (GDP) growth for October–December 2016 at 7% in its second advance estimates (AE), far higher than what was expected in an economy reeling under the effects of demonetisation. The second AE, which also include full-year estimates, expect GDP growth to be 7.1% for 2016–17, the same as the first AE, a fall of half a percentage point from 7.6% for 2015–16. These estimates once again call into question the CSO’s methodology of providing advance and provisional estimates. Even as the Chief Statistician of India, T C A Anant confessed that he would not “draw any conclusions” from the latest estimates to “ascertain the impact of (the) note ban on the economy,” euphoric reactions from particular government spokespersons claimed that the adverse consequences of demonetisation were exaggerated, and even unfounded. Prime Minister Narendra Modi predict­ably used the growth “guesstimate” in election speeches in Uttar Pradesh.

The CSO releases two growth figures: GDP at market prices and gross value added (GVA) at basic prices (both in real terms). GVA has grown by 6.7% during 2016–17, that is, a clear 1.1 percentage point lower than in 2015–16, or lower by over ₹1.15 lakh crore. This figure clearly captures the losses of incomes, jobs and effective purchasing power in the informal sector and households immediately after demonetisation. GVA at basic prices, excludes indirect taxes, and is closer to the traditional way of estimating of GDP at factor cost that was used in the past for working out the real rate of growth of the economy. To be sure, this earlier method has a strong foundation in economic theory. The high GDP estimate by the new method is no doubt on account of including indirect taxes, which can be considered double-counting as extra tax receipts lead to additional expenditures generating value addition.

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Updated On : 28th Aug, 2017
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