The GDP riddle
The Government has claimed that despite demonetization and consequent deceleration of economic activity, the GDP grew by seven per cent in the third quarter of the current fiscal. The claim has been disputed by the opposition parties and a number of economists. They have called the GDP estimate as ‘highly suspect’ and ‘questionable.’ The effect of demonetization is well known by now: fall in sales, fall in employment and fall in production, particularly in construction industry. The silver lining was agriculture which performed well. The Prime Minister Narendra Modi has taunted former Prime Minister Manmohan Singh, former Finance Minister P. Chidambharam and eminent economist Amartya Sen for having predicted earlier that the GDP growth would be adversely affected by demonetization.
Modi has claimed that ‘hard work’ has belied the pessimistic prognostications of economists from Harvard and Oxford. What the Prime Minister chose not to mention was that reputable foreign credit-rating agencies had also predicted that India’s GDP would fall because of demonetization. Whether the GDP growth figures were reflective of the true state of the economy or were fudged with an eye on the ongoing State assembly elections will be known later. If election results go in favour of the ruling party, it will be claimed that the people have gladly accepted the ‘temporary inconvenience’ they had to face in the wake of demonetization and the critics have been proved wrong. But the actual economic effect of demonetization can only be known only by June this year.
Fudging figures is nothing new. During the UPA rule, the number of people living below poverty line (BPL) used to be reduced at will by the then vice-chairman of the Planning Commission just by changing the definition of poverty. It used to be claimed periodically that the retail prices of commodities or CPI had fallen though the prices prevailing in the markets belied the claim. The present claim of registering a seven per cent GDP growth despite the unsettling effect of demonetization is therefore suspect. The Central Statistical Organization (CSO) which released the GDP growth figure has itself admitted that it could not collate the data on the impact of demonetization including losses in jobs and production especially in the micro, small and medium sectors. The official claim about GDP growth, therefore, needs to be taken with a pinch of salt. The real picture may be very different from what is being presented now.