The advanced GDP growth numbers of the Central Statistics Office have surprised analysts and economists alike as they seem to suggest that demonetisation has little or no impact on the overall growth prospect of the country.
Bibek Debroy, member, Niti Aayog, however, seems to suggest that those who are raising doubts over the GDP numbers do not understand how they are calculated and that he would not be surprised if the GDP growth accelerated due to demonetisation.
"I am saying anyone who's sceptical about the GDP number should understand GDP and then ask having understood GDP, what should I expect from the GDP numbers. So, I am actually prepared to believe that due to demonetisation, the GDP has actually increased," says Debroy.
Arguing his case, Debroy gives the example of real estate market, which is said to be hit by demonetisation. He says the general argument is that if the real estate market has been impacted, how the gross value addition (GVA) can then show a growth of 7.1 per cent.
He explains: "If I buy a plot of land from you, what does it do to the GDP? Nothing, it is just a transfer payment. On the other hand, land and real estate are registered at a certain price, which is white. What has been affected is the black part. The black part is anyway not accounted for in GDP. If in real estate the value of black and white was 50:50 and due to demonetisation, the white part has increased even if to 55 per cent, that would boost the GDP."
Debroy further argues: "GVA is value of output minus value of input. So, if output is coming down, the input is also coming down. And the real part is output minus input divided by prices. If prices (denominator) are coming down, the real GVA would increase."
On the point that most of the cash is in the bank, he says even if the companies have laundered money and the cash is back in the banking system, this should show up somewhere in their books of account. "This in all probability would show up in other income. This is pure statistics. So, the argument about GDP is a very difficult argument," he says. On the broader issue of credibility of the new GDP data , Debroy says that whenever there is switch, you may change the base year, you may also change the weighs, but in this case, on the recommendations of various committees, even the source (of data) was changed.
"So, the source became the MCA (ministry of corporate affairs) data and therefore, it became completely incomparable to the old data. Even if you attempt a matching, it would be an imperfect matching because the source of data is different," he says.
On the issue of rising discrepancies in the GDP data, he says in Q1, Q2 and Q3, the CSO is giving projections and not the actual figure. But in Q4, which comes at the end of the year, they have the total actual figure. So any diversion from the earlier projections are then explained through errors and omissions. He also says that criticising the real GDP is like barking the wrong tree.
"The nominal figure is actually the figure that we calculate, then we deflate it. There is a deflator issue for services. Somebody may use CPI as deflator, and say that the real GDP number is wrong. But then that is like saying my deflator is more sacred than yours," he says.
However, he admits that there is an issue with the CSO's deflator. "The debate is going on for a long time to work out a producer price index for services. So, yes there is a deflator issue, but that doesn't mean someone else's deflator is better than CSO's deflator. Your deflator is just as arbitrary."
He also dispels the doubts over the nominal GDP figure. "I don't think there should be any grave doubts (about nominal GDP figure)."