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GDP data minus note ban impact on informal sector lacks credibility



GDP Data

The latest official data showing Indian Gross Domestic Product (GDP) growth at 7 per cent for the third quarter was only marginally impacted by the November 8 demonetisation measure has served to re-ignite the controversy about the methodology employed to calculate the country’s national income.

The Central Statistics Office (CSO) on Tuesday estimated that India’s GDP for the third quarter ended December, at Rs 30.28 lakh crore, recorded a growth of 7 per cent, compared with 7.3 per cent in the previous quarter. The country had registered a GDP of Rs 28.31 lakh crore in the corresponding quarter of 2015-16.

The estimates of GDP growth for the full fiscal 2016-17, at 7.1 per cent, marked a sharper fall from the 7.9 per cent recorded for the fiscal 2015-16.

This appeared to fly in the face of previous private surveys documenting the disruption caused by the demonetisation of Rs 500 and Rs 1,000 rupee notes constituting 86 percent of currency in November.

Both the Reserve Bank of India (RBI) and the International Monetary Fund (IMF) have lowered India’s growth estimates for the fiscal by up to 1 per cent, citing the impact of demonetisation.

“The methodology employed for GDP calculation, although workable during normal times, is absolutely not valid for unusual situations for the reason that it does not have data on the informal sector that has borne the brunt of demonetisation,” economist Arun Kumar, formerly professor at Jawaharlal Nehru University (JNU) here, told IANS.

The informal sector accounts for an estimated 45-50 per cent of output in the Indian economy.

Kumar pointed to surveys done bodies like the PHD Chamber of Commerce, the All India Manufacturers Association, the Nikkei PMI and the State Bank of India (SBI) that highlight the impact of demonetisation, whereby the unorganised sector growth has been hit to the extent of between “31 to 40 per cent”.

“Instead, the situation for the organised sector can best be described as stagnant. In such a scenario, growth can never be positive…the figures should have shown zero per cent or even negative growth,” Kumar said.

“Credit offtake had started falling in October itself and worsened in November. The industrial rate of growth was negative in October and in December, with a slight pick-up in November. When businesses are not taking loans, where is the question of growth,” he added.

In this regard rating agency ICRA said in a note: “Since the early estimates of quarterly Gross Value Added (GVA) rely heavily on available data from the formal sector, which is expected to have weathered the note ban better than the informal sector, the Q3 FY2017 GVA growth of 6.6 per cent may not be fully capturing the impact of the note ban.”

State-run SBI suggested that the steep downward revision in the GDP estimates for the third quarter of 2015-16 has, in turn, resulted in higher growth figures for the third quarter of 2016-17, thus masking the impact of demonetisation in the Q3 figures.

“Even then it seems implausible that the positive effect of downward revision in previous year is strong enough to overpower the negative effect of demonetisation in Q3 FY17. The numbers seems too good to be true,” SBI Group Chief Economic Adviser Soumya Kanti Ghosh
said in a note.

Chief Statistician T.C.A. Anant told reporters here after releasing the data that the impact of demonetisation is difficult to assess in the absence of sufficient data.

“Policies such as demonetisation are difficult to assess without a lot of data, a lot of which is still to come in. As of now we have factored in the third quarter figures on industrial production and only the advance filings of corporates,” Anant said.

In terms of GVA — considered a better measure of economic performance, as it excludes product taxes and subsidies — of Rs 28.02 lakh crore for the quarter in question, the growth at 6.6 per cent was slower compared with 7 per cent in the previous year.

What surprised economists further was that data for private consumption showed an increase of 10 per cent during the quarter which felt the maximum impact of demonetisation.

“There are widespread doubts about the accuracy of the national accounts numbers. The unexpected strength of today’s (Tuesday) data will do nothing to allay these concerns,” Capital Economics said in a research note.

India’s GDP captures economic activity in the formal sector, which constitutes just 10 per cent to 15 per cent of the economy.

“The way estimates are obtained by extrapolation of indicators from the formal sector is an incorrect methodology in the scenario post-demonetisation. Even zero per cent growth is an optimistic scenario,” Kumar said.

Meanwhile, data on Tuesday also showed industrial growth in eight “core” infrastructure areas slowed down to 3.4 per cent in January, compared to 5.6 per cent growth in the same month last year.

Indirect tax revenues are being seen to have increased on the back of more transactions coming under the tax net, and higher fuel prices.

Anant told reporters that the nearly half percentage point difference between the GVA and the GDP growth figures is due to “an improved estimate in net indirect taxes”.

The country’s former Chief Statistician also said the latest GDP figures do not accurately reflect the negative fallout of the ban on high-value currency.

“My sense is that once the informal sector numbers come in next year, we would probably see that (growth rate) going below 6.5 per cent,” former Chief Statistician Pronab Sen told a news channel.

According to Sen, the higher tax collections during November-December are explained by corporates paying excise on inventory they had sent out of factories and into retail outlets.

“There have been pre-payment of excise duty which is showing up in the difference between GDP and GVA growth,” Sen said.

The inventory offloaded by manufacturers, however, did not get picked up at retail outlets as demonetisation pushed people to postpone purchases, as other private surveys have showed.

This is borne out by automobile sales data for the months of November and December, which record a fall.

The latest figures have reignited a two-year old controversy that began when GDP data was unveiled under a new series. The advance estimates of GDP for 2014-15, computed with the changed methodology, projected India’s growth during the year at 7.4 percent.

The new numbers seemed contradictory when compared with other economic indicators such as revenue growth of listed firms, expansion of bank, the index of industrial production numbers as well as real challenges confronting India Inc., such as weak demand, high debt and low earnings.


Amazon Quiz Answers Today, November 25, 2020: Answer and Win Rs 5000 Pay Balance

Amazon quiz Answers Today, November 25, 2020: The Amazon Quiz for November 25, 2020, is live and today you have the chance to Win Rs 5000 Pay Balance.




Amazon quiz Answers Today, November 25, 2020: The Amazon Quiz for November 25, 2020, is live and today you have the chance to Win Rs 5000 Pay Balance. The trivia quiz gives a chance to users across the country to win exciting gifts every day by answering a set of simple questions.

After giving the right answers to the questions users can win mobile phones, other gadgets, and Amazon Pay Balance. E-commerce giant Amazon never disappoints its users and today’s gift is special for all the online shopping lovers.

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Congress opposes move to let corporates enter banking sector





New Delhi: The Congress on Tuesday opposed the proposal to allow corporates and business houses enter the banking sector, contending that this move will leave the depositors at their mercy as it happened in the case of Yes Bank and Laxmi Vilas Bank.

Addressing a press conference, former Finance Minister P. Chidambaram said: “The Congress party condemns the proposal and demands that the government, unequivocally and forthwith, declare that it has no intention of pursuing the proposal.”

“We call upon all the people of India and all political parties and trade unions to join us in resolutely opposing the retrograde idea of allowing corporates and business houses to enter the banking sector and set up banks,” he added.

The Congress alleged that the proposal, ostensibly based on a report of an RBI Internal Working Group, has the fingerprints of the Modi government written all over it.

This proposal, along with some other recommendations, is part of a deeper game plan to control the banking industry, it said, claiming that the proposal, if implemented, will completely reverse the enormous gains made in the last 50 years of retrieving the banking sector from the clutches of business houses.

Noting that all over the world, especially in developed economies, three principles govern banking — broad-based shareholding reflecting shareholder democracy, strict separation of ownership and management with ownership with shareholders and management in professional hands, and prohibition of connected lending, Chidambaram said that all three will be thrown out of the window if corporates and business houses are allowed to set up banks.

“Bank funds belong to the depositors who are the people of this country. As a proportion of total deposits, the equity of a bank is minuscule. The total deposits in the banking industry is of the order of Rs 140 lakh crore… If business houses are allowed to own banks, they will, with a small equity investment, control very large amounts of the nation’s financial resources. This must not happen and the Congress will strive its utmost to ensure that this will not happen,” Chidambaram said.

He said that it “is shocking that such an idea should have been presented to the people as though it has the imprimatur of experts and the endorsement of the RBI”.

“Just as the RBI was the cat’s paw of the government in the saga of demonetisation, the RBI is being used by the government to push through its dangerous agenda,” he said.

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Brent hits highest since March, spurred by coronavirus vaccine hopes

This follows positive trial results from Pfizer/BioNTech and Moderna.




Brent Crude Oil

SINGAPORE: Brent crude prices hit their highest levels since March as news of a third promising coronavirus vaccine candidate spurred hopes of a quicker recovery in oil demand, while U.S. President-elect Joe Biden received the go-ahead to begin his leadership transition.

Brent crude futures rose 43 cents, or 0.9%, to $46.49 a barrel by 0522 GMT, while U.S. West Texas Intermediate crude added 45 cents, or 1.1%, to $43.51 a barrel.

Brent rose to a session high of $46.56 earlier on Tuesday, the highest level traded since early March before Saudi Arabia initiated a price war with Russia, which sent oil prices crashing. Both oil benchmarks settled up about 2% on Monday after gaining about 5% last week.

“Progress on developing and distributing a vaccine de-risks the path back to normal for oil markets,” said Stephen Innes, chief global markets strategist at financial services firm Axi.

“If mobility data is a measure of oil price sentiment, in the not too distant future, the vaccine will get people back on airplanes and cruise ships.”

AstraZeneca said on Monday its COVID-19 vaccine was 70% effective in pivotal trials and could be up to 90% effective, giving the world’s fight against the global pandemic a third new weapon that can be cheaper to make, easier to distribute and faster to scale-up than rivals.

This follows positive trial results from Pfizer/BioNTech and Moderna.

Also helping to ease uncertainty in financial markets, President Donald Trump on Monday allowed officials to proceed with a transition to Joe Biden’s incoming administration, giving his rival access to briefings and funding even as he vowed to persist with efforts to fight the election results.

U.S. crude oil inventories likely edged lower last week, while distillate stockpiles were seen decreasing for a 10th straight week, a preliminary Reuters poll showed on Monday, ahead of reports from the American Petroleum Institute and the Energy Information Administration (EIA).

Traders also focused on a week of technical meetings by OPEC and its allies to prepare the ground for next week’s ministerial gathering, which is set to discuss extending oil output curbs into next year due to weak demand amid a second wave of COVID-19.

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