GDP growth data puzzling, figures don’t add up, say economists

Government data showing a surprise 7 per cent GDP growth in the October-December quarter has left many economists puzzled who say the figures ‘do not add up’ and may be “masking” the real impact of demonetisation.

The economists finding the data intriguing include those from public sector giant SBI as well as global majors like Nomura and Bank of America Merrill Lynch.

They believe that the key reason behind such a high growth rate could be “a steep downward revision” of the year-ago base period.

Besides, they said that many companies might have showed their cash in hand as sales, while the official data may have been unable to capture the negative growth effects of demonetisation on the the unorganised sectors.

In a report published today, Nomura went on to question whether India’s growth statistics was “fact or fiction” and said the “official data are underestimating the reality as they rely largely on organised sector data”.

SBI Chief Economic Adviser Soumya Kanti Ghosh said the third-quarter estimates, released by the government on Tuesday, was crucial in the sense that it should have given the impact of what happened in the economy during those two months of demonetisation, announced on November 8.

“The steep downward revision of Q3 FY16 has in turn led to higher growth in Q3 FY17, thus masking the impact of demonetisation in the Q3 figures. Some of the numbers beneath the surface however signify the impact of demonetisation.

“Despite the upward revision of Q1 FY16 and Q2 FY16, GDP estimates for Q1 FY17 and Q2 FY17 have been revised upwards indicating improvement in economic activity in first half of current fiscal,” he wrote in a report.

According to official statistics, demonetisation hardly dented economic momentum and India’s GDP growth slowed only marginally to 7 per cent year-on-year in the fourth quarter from 7.4 per cent in the third quarter of 2016.

“This does not add up. High frequency real activity data released since demonetisation suggest that consumption and services were hit after demonetisation because they are more cash-intensive,” Nomura said.

It further said that “there could be three reasons for this discrepancy. First, the inability of official statistics to capture the negative growth effects on the unorganised sectors; second, positive base effects created by the 0.8 pp upward revision in fourth quarter 2015 GDP growth; and third, companies may have showed their cash in hand as sales.

“In our view, official GDP statistics are significantly underestimating the growth impact of demonetisation,” Nomura added.