Growth and Consupmtion CSO Estimates correct in Post Demonetization : J.D. Agarwal

IIF; 5th March, 2017: “Doubts for growth and consumption figures in some of the quarters are unfounded” said Prof. J.D. Agarwal, Professor of Finance and Chairman, Indian Institute of Finance. According to him, doubts with respect to growth rate 7% and consumption level over to 10% during the quarter October – December 2016 are erroneous and unfounded because of boost in the activity, post demonetization.
Doubts have been expressed in some quarters including by some economists regarding the latest GDP estimates and consumption shooting up to over 10% during the Oct-Dec quarter particularly when companies were reporting a steep drop in sales. It is stated that the impact of the demonetization on the economy has not been accurately, accounted in CSO estimates.

According to Prof. Agarwal, there may be several factors to justify CSO estimates of consumption growth being over 10% during Oct- Dec as compared to half of that rate proceeding in the three months periods i.e. July-Sep and recording GDP growth at 7%.

One of the factors could be that in the post demonetization from 8th November onwards people used old currency as garbage and threw it for purchasing whatever they could. They spent heavily particularly on items which were allowed to be purchased using old currency such as medicine, Medicare, petrol etc., there was an excessive use of old currency to avail of exemptions granted for the use of old currency said Prof. Agarwal. Of course people deposited cash holding in the banks and also exchanged the old currency with the new one.

Secondly, unscruplous people holding unaccounted money hired a very large number of people, labour, household maids, servents etc to stand-up in the queues to exchange their money against a token payment. The token money paid to them as earnings of such people have added to their purchasing power fueling to demand and to the increased consumption feels Prof. Agarwal.

Thirdly, prior to demonetization the purchases made through cash from unaccounted money was not adequately included in CSO estimates. After Demonetisation, most of the transactions of production & consumption were accounted feels Dr. Agarwal.

Fourthly, a large amount of unaccounted money was also spent to purchase jewellaries, diamonds and other items, Such purchases were recorded as sales prior to 8th November 2016 using fictitious billing resulting into a consumption level of over 10%, which falls in Oct-Dec quarter.

Traders and businessman during the quarter Oct-Dec tried to show maximum sales and issue the fake invoices so as to deposit old money in the banks opined Prof. Agarwal.

According to Prof. Agarwal, if it is considered that about 23% of the economy is unaccounted then in the post demonetization a major part of it became accountable, resulting in higher production and consumption. An estimated GDP growth rate 7% is also because of agricultural growth of 4.4% this year as compared to 0.8 % last year.

Prof. Agarwal feels that the gains of cleaning the economy from the menace of black money, counterfeit currency and naked display of excessive cash holdings in the economy outweigh the losses suffered in terms of lower growth rate, unemployment in the short term and the troubles faced by people in the process of demonetization.

Indian Institute of Finance, setup in 1987 as a non profit educational institution pioneered business finance education in India.

INDIAN INSTITUTE OF FINANCE
45A, KNOWLEDGE PARK III
GREATER NOIDA

This release was published on openPR.