GDP Data Expected To Put Notes Ban Worries Behind But Critics Wary

In a fortnight which saw India beat China to emerge as the most favoured investment destination, GDP or gross domestic data is expected to further show the improving health of the Indian economy. The March quarter GDP data will be released later today.

If the data matches economists' expectations of 7.1 per cent growth, the NDA government, which completed three years in power on May 26, will get another counter argument against the critics who had claimed that the November 8 ban of high denomination notes would considerably slow down the economy. Economists and economic assessment agencies had claimed that that note ban would trample consumer demand and hurt the growth projections at a time when the economy had just reached a take-off stage.

Experts, who are eagerly waiting for the release of March quarter data, say that if the growth comes in at 7.1 per cent it will mean consumers simply delayed their buying, not stopped it.

A 7.1 per cent mark in January-March will not just be slightly better than the 7 per cent growth registered in the last quarter, it will also help India elbow past China which recorded a 6.9 per cent growth in the same period.

A senior Finance Ministry official said that growth will be fuelled by speedy introduction of new Rs 500 and Rs 2,000 banknotes as well as stepped-up consumer demand generated by last traditional wedding season, and purchase of items like refrigerators and air conditioners at the onset of the summers.

Some economists and the Bharatiya Janata Party's political rivals are however reluctant to take the GDP figures at face value after the government changed the methodology for calculating the growth figures two years ago. They claim that this methodology tweak moved Indian economy from sluggish to the best category.

Critics are also likely to raise red flags over the March quarter numbers. They may argue that data including wholesale price and industrial production based on the benchmark of 2011-12 is suspect. A senior economist at a rating agency said that "the re-based parameter is bound to dress up the growth figure. Though the government has added new items and industries in calculating industrial indices, it's a fact that the indices are built minus the informal sector which is much larger in comparison and was severely hit by notes ban."

A high GDP figure will also sharpen an economic contrast. From the completion of its first year in power, the BJP's claims of reviving economic growth have been dented by charges of low job growth. The government has defended itself saying that new schemes were generating jobs but the employment created was not getting recorded.

The government's third-year celebrations have been marred by layoffs and protests in the IT sector which till a few years ago was considered a sunrise sector. To throw a credible counter against the jobless growth charge, the government has set up a task force to collate data on the job situation in the country.

A high GDP figure will underline the job deficit situation. According to a report from rating agency CRISIL, between 2011 and 2019, India will add 80 million to the workforce but generate only 38 million non-agro jobs. The problem is compounded by the fact that agriculture will absorb 12 million between 2011 and 2019, compared to 37 million between 2004 and 2012, and the fact that low labour intensity sectors are growing faster than the overall GDP growth while high labour intensity sectors are seeing weak growth.

The government recently shifted the base year for calculating factory output data and wholesale price data from 2004-05 to 2011-12. That not only metamorphosed the factory output picture but reduced considerably the gap between the rate of industrial growth and economic growth (see table).

IIP Picture:
 

Fiscal year	Base year 2004-05	Base year 2011-12
2014-15	2.8%	4%
2014-16	2.4%	3.4%
2016-17	2.7%	5%

Commenting on the change in base year, Devendra Kumar Pant, chief economist at India Ratings, said, "Both indices are now measuring inflation and industrial production with reference to a closer time and closer to real situation. But there are problems. The IIP data generated does not include the informal sector. Only the organised sector is considered. And even there the data is not accurate or adequate."

Some critics reckon that the economic growth pegged at 7 per cent is overstated by as much as 150 basis points. On the other hand, the timely arrival of monsoon has brought a smile on the faces of economy watchers and government decision-makers, who say that good monsoon and the likely introduction goods and services tax (GST) regime from July will propel growth in the coming days.