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The Jat Regiment

created Feb 6th 2023, 17:48 by vedpal1131


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642 words
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When “facts” are at variance with widely observed reality, as is certainly the case with demonetisation, it is time to question the basis on which the “facts” stand. So, why is it that c? First off, it is important to recognise that the statistical concept of growth of any kind, economic or other, is always relative. When the CSO’s latest estimate arrived, all eyes were on how the economy had fared in the third quarter of the current financial year. But tucked away in the release was the fact that the estimates of GDP for the comparable quarter of the previous year (the third quarter of 2015-16) were revised downward. Of course, there is nothing wrong with later estimates making corrections for earlier estimates, but it is indisputable that the lowering of the earlier estimate creates the statistical illusion of a buoyant performance during a period in which the economy experienced an unprecedented shock.
    Observers such as Soumya Kanti Ghosh, Chief Economist at state Bank of India, have pointed out that the “steep downward revision” of GDP estimates for the third quarter of 2015-16 has had the effect of “masking” the impact of demonetisation. Indeed, if the unrevised figure for GDP in the third quarter of 2015-16 are used for comparison with the third quarter of the current year, GDP growth for the quarter would amount to only 6.2 per cent and not 7 per cent. Another puzzling aspect of the downward revision is that it has been done only for the quarter; the estimates for all other quarters of 2015-16 have been revised upwards.
    But this statistical illusion is only one major problem. Another aspect of the problem pertains to the estimates of GDP emanating from the manufacturing sector. The CSO’s latest estimate reveals that growth in gross value added (GVA) in manufacturing increased by 8.3 per cent during the October-December 2016 quarter. However, another set of data, the Index of Industrial Production (IIP), which is also collected by the CSO, show that industrial growth in the three months of that period was up 2.4 per cent, up 5.5 per cent and down 2 per cent, respectively. Interestingly, the IIP data show that compared with figures for a year earlier, industrial growth was in negative territory. Bank credit, which is another indicator, also sits uncomfortably with the GDP estimates. Data published by the Reserve Bank of India (RBI) show that bank credit shrank by 4.3 per cent in December 2016, which raises an obvious question; how could a growing economy do with less credit, especially in a period of widespread cash shortage?
    One of the most significant drivers of GDP growth in the current year appears to be agriculture, going by the latest CSO estimate. Of course, a part of the problem with the statistics arises from the new methodology that has been adopted after the Modi government assumed office, in 2015 (“Rejigging statistics”, Frontline, March 20, 2015). GVA in agriculture is estimated to have grown by 6 per cent in third quarter of 2016-17. There are two problems with the estimates. For one, there is an element of a agriculture contracted by 2.2 per cent in the comparable significant surprise is that it does not appear to reflect the across-the-board collapse in agricultural commodity prices after demonetisation took effect.
    The fact that demonetisation was initiated right in the middle of the harvesting season (and which also affected subsequent sowing operations) resulted in a steep decline in prices. Given that the value of agricultural output is dependent not just on output levels but also on price levels, the sharp increase does appear odd. At the very least, the data reflect a disconnection with reality. It is possible that extrapolation  of previous data may be responsible for why the output of the informal sector appears exaggerated, contrary to popular expectation after demonetisation.

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