Surajit Das
The
Central Statistics Office (CSO) of Govt. of India has released one press note
on 31st January 2019 on the first revised estimate of India’s
national income for 2017-18. According to this, the Gross Domestic Product (GDP)
has increased by 7.2% in 2017-18 and by 8.2% in 2016-17 (second revised
estimate). These annual numbers are important because the quarterly GDP
estimates are based on many unrealistic assumptions and extrapolations and therefore
are controversial. It is important to note that the growth rate of GDP in 2014-15
and in 2015-16 have been 7.4% and 8% respectively. Therefore, CSO claims that
the country’s growth rate remained, more or less, unaffected by
‘demonetisation’.
Central Statistics Office (CSO) of Govt. of India has released one press note
on 31st January 2019 on the first revised estimate of India’s
national income for 2017-18. According to this, the Gross Domestic Product (GDP)
has increased by 7.2% in 2017-18 and by 8.2% in 2016-17 (second revised
estimate). These annual numbers are important because the quarterly GDP
estimates are based on many unrealistic assumptions and extrapolations and therefore
are controversial. It is important to note that the growth rate of GDP in 2014-15
and in 2015-16 have been 7.4% and 8% respectively. Therefore, CSO claims that
the country’s growth rate remained, more or less, unaffected by
‘demonetisation’.
In
this context it is important to remember that ‘demonetisation’ happened in the
beginning of November 2016 and we all know what happened after that. Our average
consumption definitely did not go up immediately after demonetisation. In fact,
many of us were finding it difficult to maintain our usual level of consumption
pattern and we were postponing some of the consumption of non-essentials. Very
few Indians could actually manage to maintain their consumption pattern with
credit card and electronic money. It definitely took more than one – one and
half years to overcome the liquidity crisis and the panic associated with it. Our
experience tells us that the consumption of commodities and services came down after
demonetisation (than before) and aggregate consumption expenditure (at constant
prices i.e. after discounting for inflation) definitely did not go up.
this context it is important to remember that ‘demonetisation’ happened in the
beginning of November 2016 and we all know what happened after that. Our average
consumption definitely did not go up immediately after demonetisation. In fact,
many of us were finding it difficult to maintain our usual level of consumption
pattern and we were postponing some of the consumption of non-essentials. Very
few Indians could actually manage to maintain their consumption pattern with
credit card and electronic money. It definitely took more than one – one and
half years to overcome the liquidity crisis and the panic associated with it. Our
experience tells us that the consumption of commodities and services came down after
demonetisation (than before) and aggregate consumption expenditure (at constant
prices i.e. after discounting for inflation) definitely did not go up.
However,
the CSO is asking us to believe that the private final consumption expenditure
has not only increased (in real terms) immediately after demonetisation, it has
increased at around 8% annual rate at the aggregate level. Even if we believe
that the real consumption increased by 8% during April to October 2016, in the
second half of financial year 2016-17 and in 2017-18 the growth rate in real
consumption should have been at least zero, on average, if not negative. In
that case, given the conservative estimates, the growth in consumption
expenditure at constant prices should have been around 4% in 2016-17 and that
should have been around 0% in 2017-18. Since, private final consumption
expenditure (PFCE) constitutes more than 56% of GDP at constant prices, keeping
the other components at their levels, the GDP growth rates would have been less
than 6% in 2016-17 and less than 4% in 2017-18. But, CSO numbers are 8.2% and
7.2% respectively. These annual revised estimates and not extrapolated
debatable quarterly estimates – they are as good as ‘actuals’.
the CSO is asking us to believe that the private final consumption expenditure
has not only increased (in real terms) immediately after demonetisation, it has
increased at around 8% annual rate at the aggregate level. Even if we believe
that the real consumption increased by 8% during April to October 2016, in the
second half of financial year 2016-17 and in 2017-18 the growth rate in real
consumption should have been at least zero, on average, if not negative. In
that case, given the conservative estimates, the growth in consumption
expenditure at constant prices should have been around 4% in 2016-17 and that
should have been around 0% in 2017-18. Since, private final consumption
expenditure (PFCE) constitutes more than 56% of GDP at constant prices, keeping
the other components at their levels, the GDP growth rates would have been less
than 6% in 2016-17 and less than 4% in 2017-18. But, CSO numbers are 8.2% and
7.2% respectively. These annual revised estimates and not extrapolated
debatable quarterly estimates – they are as good as ‘actuals’.
If
we look at the dis-aggregated figures for PFCE, we see that there have been
negative growth only in consumption of alcohol, tobacco and narcotics and that
in communication services. But, the weights of these in total consumption
basket are only around 2% each. Food consumption (with 26-28% weight), which
was growing at 1.2% in 2014-15 and 1.8% in 2015-16 suddenly grew at 11% rate in
2016-17, in the year of ‘demonetisation’. Clothing and footwear consumption
went up by more than 11% in 2017-18. Furnishings, household equipment and
routine household maintenance commodity consumption went up by 13% in 2017-18
in real terms. Health, education and transport expenditures have increased
phenomenally in both 2016-17 and in 2017-18 even after discounting for their
price rise (see table). Real expenditure on hotels and restaurants have also
registered around 8% increase in both the years and consumption of
miscellaneous goods and services has gone up by more than 10% in the year of
‘demonetisation’ and in the year after that. These are quite remarkable increase
in consumption, even after discounting for their respective price rise,
following ‘demonetisation’.
we look at the dis-aggregated figures for PFCE, we see that there have been
negative growth only in consumption of alcohol, tobacco and narcotics and that
in communication services. But, the weights of these in total consumption
basket are only around 2% each. Food consumption (with 26-28% weight), which
was growing at 1.2% in 2014-15 and 1.8% in 2015-16 suddenly grew at 11% rate in
2016-17, in the year of ‘demonetisation’. Clothing and footwear consumption
went up by more than 11% in 2017-18. Furnishings, household equipment and
routine household maintenance commodity consumption went up by 13% in 2017-18
in real terms. Health, education and transport expenditures have increased
phenomenally in both 2016-17 and in 2017-18 even after discounting for their
price rise (see table). Real expenditure on hotels and restaurants have also
registered around 8% increase in both the years and consumption of
miscellaneous goods and services has gone up by more than 10% in the year of
‘demonetisation’ and in the year after that. These are quite remarkable increase
in consumption, even after discounting for their respective price rise,
following ‘demonetisation’.
Even
if we take the other CSO numbers on other components of GDP (other than PFCE)
viz. government final consumption expenditure (GFCE), investment, export,
import etc. for granted, it is difficult to believe in these GDP growth figures,
particularly within one and half years of ‘demonetisation’. We know that the
aggregate consumption did not rise at 8% rate in the second half of 2016-17 and
in 2017-18. There is something seriously wrong. When the researchers would run
various regressions using these annual growth figures, in future, for empirical
analysis, the results would be contaminated and drawn inferences may also be
wrong and misleading. Data should reflect the reality as accurately as
possible.
if we take the other CSO numbers on other components of GDP (other than PFCE)
viz. government final consumption expenditure (GFCE), investment, export,
import etc. for granted, it is difficult to believe in these GDP growth figures,
particularly within one and half years of ‘demonetisation’. We know that the
aggregate consumption did not rise at 8% rate in the second half of 2016-17 and
in 2017-18. There is something seriously wrong. When the researchers would run
various regressions using these annual growth figures, in future, for empirical
analysis, the results would be contaminated and drawn inferences may also be
wrong and misleading. Data should reflect the reality as accurately as
possible.
Growth Rates in Private Final Consumption Expenditures at
Constant Prices (In%)
Constant Prices (In%)
|
|
Heads
|
2014-15
|
2015-16
|
2016-17
|
2017-18
|
|
1
|
Food
and non-alcoholic beverages |
1.18
|
1.80
|
10.96
|
0.68
|
|
2
|
Alcoholic
beverages, tobacco & narcotics |
9.59
|
-0.60
|
-0.68
|
-5.26
|
|
3
|
Clothing
and footwear |
2.43
|
9.17
|
1.59
|
11.30
|
|
4
|
Housing
water electricity, gas & other fuels |
4.99
|
2.95
|
3.26
|
3.43
|
|
5
|
Furnishing,
household maintenance |
6.67
|
9.96
|
4.58
|
12.85
|
|
6
|
Health
|
14.66
|
10.51
|
11.63
|
16.57
|
|
7
|
Transport
|
6.97
|
13.65
|
10.55
|
17.34
|
|
8
|
Communication
|
23.07
|
4.40
|
0.51
|
-4.13
|
|
9
|
Recreation
and culture |
5.75
|
-1.38
|
3.14
|
8.00
|
|
10
|
Education
|
6.67
|
9.55
|
9.49
|
12.37
|
|
11
|
Restaurants
& hotels |
5.91
|
12.38
|
7.94
|
7.85
|
|
12
|
Miscellaneous
goods & services |
14.36
|
20.78
|
10.69
|
10.59
|
|
|
TOTAL PFCE
|
6.25
|
8.10
|
8.17
|
7.52
|
|
|
GDP at 2011-12 Prices
|
7.4
|
8.0
|
8.2
|
7.2
|
Source: CSO Press
Note Dated 31st January, 2019. Ministry of Statistics and Programme
Implementation, Govt. of India.
Note Dated 31st January, 2019. Ministry of Statistics and Programme
Implementation, Govt. of India.
