The latest government data on GDP showing that demonetisation drive barely impacted India's economy has taken economists by surprise who look at the data sceptically.
The government had yesterday pegged GDP growth at a higher-than-expected 7.1 per cent for 2016-17 despite the cash blues, which was higher than China's 6.8 per cent for Oct-Dec period of 2016, making India retain the tag of the world's fastest growing economy.
Prime Minister Narendra Modi and Finance Minister Arun Jaitley has expressed satisfaction with the growth rate and have slammed those who said that the note ban has adversely affected the growth.
Seeking to prove wrong the prophets of doom post-note ban, Modi said the latest GDP data showed demonetisation did not affect growth rate, rather the figure improved while Finance Minister asserted it belied exaggerated claims of the impact on rural economy.
Taking on the critics of demonetisation, the prime minister mocked economists and said: "hard work is more powerful than Harvard".
"On the one hand are those (critics of note ban) who talk about what people at Harvard say and on the other hand is a poor man's son who through his hard work is trying to improve the economy," he said at an election meeting in Maharajganj in Uttar Pradesh.
"In fact, hard work is much more powerful than Harvard, " he said without elaborating.
His remarks come against the backdrop of Professor of Economics and Philosophy at Harvard University and Nobel Laureate Amartya Sen terming demonetisation as a "despotic action that has struck at the root o the economy based on trust".
Government’s decision last November to scarp old Rs 500 and Rs 1,000 banknotes, 86 per cent of the total cash, was widely expected to exact a heavy toll on an economy.
Jaitley said that with a 7 per cent growth in GDP the worst fears for the economy have been put behind.
"I had consistently maintained that the revenue (tax collection) figures, which actually show the real level of growth, indicated that the growth was there, and some areas could be adversely impacted, particularly those which were cash dominated and also a part of the shadow economy and even constituted parts of the informal economy," he said.
But demonetisation has helped integration of informal with the formal economy, he said, adding the money that was deposited in the banks is now being spent through a system which is being recorded.
"And I think, the GDP data for Q3 really reflects that position," he said. "First of all, it belies exaggerated claims made by many that the rural sector was heavily in distress." Agriculture growth, he said, this year is at a record high.
Experts point to flaws in data
Analysts cite different reasons of how the GDP data does not reflect the situation on the ground.
Some say the GDP calculations does not factor in the informal sector, which was the worst hit after the government’s demonetisation move.
“The GDP numbers do not adequately capture the output of the informal sector. So it (Q3 GDP growth) appears to be on the higher side. There is a strong likelihood that the numbers may be revised down later,” Rupa Rege Nitsure, the Group Chief Economist at L&T Finance Holdings was quoted as saying by the Hindustan Times.
Business Standard quoted State Bank of India (SBI) “With cement dispatches for January 2017 declining by a whopping 13%, it is not clear how construction activity is reviving in Q4FY17. Similarly, bank credit growth is still at Dec 2016 levels. Overall, the GDP numbers seems to suggest we may have just leapfrogged the impact of demonetisation.”
"Perhaps this data is not capturing the impact of demonetisation. I am totally surprised and stunned to see this number," Aneesh Srivastava, chief investment officer, IDBI Federal Life Insurance Co. was quoted by Economic Times.
Strong GDP data met with scepticism by Congress and Left
Congress dubbed the Gross Domestic Product(GDP) numbers as "highly suspect" and "questionable" while the CPI-M and the CPI alleged that the growth rate has been "inflated" and "faked".
Congress spokesperson Anand Sharma said the GDP data was "surprising" and "highly suspect" that could dent India's global credibility and accused the prime minister and the finance minister of "misleading" the public.
Sharma said the GDP numbers released by the Central Statistics Office (CSO) were "misleading" as these do not factor in the adverse impact of demonetisation, including losses in jobs and production.
"The GDP numbers that have been released are surprising and highly suspect. The GDP growth as projected is questionable and will also undermine the credibility of Indian data globally," he told PTI.
Asking the prime minister and the finance minister not to "mislead" the public and address the real issues instead, the senior Congress leader said the government "propagandists" should refrain from "premature celebrations and misplaced euphoria".
Making light of the government data, the CPI-M said it is like "faking nationalism".
"It is like faking nationalism to faking data...If this growth rate is to be believed, then without the demonetisation disaster, what would have been the Q3 GDP growth rate? 25 percent?," said CPI(M) general secretary Sitaram Yechury.
CPI also raised doubts on the government data, calling it "inflated figure."
"I doubt very much if it is possible (to have GDP growth rate at 7.1 percent post demonetisation). The real criteria to gauge development is the human development index. But given people's sufferings, particularly post-demonetisation, we are not buying the inflated figure," said CPI general secretary S Sudhakar Reddy.
