Clamorworld Exclusive: Is The GDP Number Too Good To Be True?

 

India’s gross domestic product for the third quarter rose to 7%. This was perhaps one of the most waited for GDP numbers. In the wake of demonetisation of Rs 500 and Rs 1000 notes late last year, one of the biggest concerns was the potential impact on the country’s growth. Most analyst and economists had expected a significant dent in the overall growth numbers.

Though GDP expanded at the lowest rate in four quarters, the overall numbers did not indicate any major downturn in economic activity. Infact according to the numbers released private final consumption rose at a massive 10% in Q3 as compared to the 5% growth seen in the second quarter.

Not only does this 7% number makes India quarterly growth one of the fastest in the world at the moment but would also indicate that India is on track to meet its full year target of 7.1%. But the question is how is the street interpreting the numbers? While many leading economists expect a downward revision of these numbers, there are many who feel that data points used do not project a comprehensive picture.

Some leading brokerages have pointed out the data coverage by GDP was not holistic at all and left a lot of scope for improvement. While there is a school of thought that says that the high growth number might be a result of the sharp downward revision of the Q3 numbers in the previous financial year and that could be masking the impact of demonetisation in this Q3. But the extent of positive impact seems close to implausible, as per most experts in the field. Moreover it is said that the cash intensive unorganised sector, which saw the maximum impact of the demonetisation, are not represented appropriately by the GDP numbers.

In this context, there is another school of thought that says the GVA or the gross value added product, could be a lot better reflection of the exact nature of impact on the economy when compared to the data coverage of the GDP or gross domestic product.

So overall the street is rather skeptical of the growth numbers and the popular consensus is that a downward revision is on the cards in the near future.

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