1. Central Statistics Organization calls the government’s bluff

Central Statistics Organization calls the government’s bluff

There are three kinds of people who claim to have some knowledge of the state of the economy—economists, quacks and students of economics.

By: | Published: June 4, 2017 6:27 AM
p chidambaram, chidambaram, p chidambaram Central Statistics Organization,  Central Statistics Organization, p chidambaram on cso data Demonetisation was quackery. There was absolutely no reason to disrupt the economy by declaring, in a near-midnight strike, that high-value currency notes would no longer be legal tender. (Express Photo)

There are three kinds of people who claim to have some knowledge of the state of the economy—economists, quacks and students of economics. I believe I am a student learning economics every day since Eco 101 in 1967-68. Most of my learning was on the job as commerce minister or finance minister.

My first teacher was Dr Simon Kuznets. I am proud to count among my teachers Dr Manmohan Singh, Dr C Rangarajan, Mr Montek Singh Ahluwalia, Dr Venugopal Reddy, Dr Bimal Jalan, Dr Parthasarathy Shome, Dr Saumitra Chowdhury, Dr Jahangir Aziz, Dr Raghuram Rajan and many young economists. Those names should ring a bell. Each one of them occupied a key position in the UPA government and, at any time, four or five of them were available to advise the Prime Minister and the finance minister. Each one of them was a renowned economist and did not indulge in quackery.

Demonetisation was quackery. There was absolutely no reason to disrupt the economy by declaring, in a near-midnight strike, that high-value currency notes would no longer be legal tender. After talking to a number of people I had predicted that the cost to the economy would be between 1 and 1.5%. I am not happy that I have been proved right.

Opposition spot on

The data released by the Central Statistics Organization on May 31, 2017, has proved that the Opposition was spot on:

  • The Indian economy began slowing down in mid-2016 (beginning of Q2); demonetisation made it worse.
  • Gross Value Addition (GVA) is the new metric. Growth of GVA declined from 7.9% in 2015-16 to 6.6% in 2016-17. The cost to the economy was 1.3%. That is bang in the middle of the range that I had predicted.
  • Between Q4 of 2015-16 and Q4 of 2016-17, the quarterly growth rate of GVA declined by an astonishing 3.1% (from 8.7% to 5.6%). It was a man-made calamity.
  • On the new base year of 2011-12, GDP declined by 0.9% (from 8.0% in 2015-16 to 7.1% in 2016-17).

If you drill further into the data released by the CSO, you will find many other disquieting features. Core sector growth, which is a truer measure of industrial activity, fell from 10.7% in Q4 of 2015-16 to 3.8% in Q4 of 2016-17. Mining, manufacturing, electricity, construction, trade, hotels, transport, communication, finance, real estate and professional services had declined. Of these, the construction sector, which is the second largest job-creating sector, shrunk by 3.7% in 2016–17 (meaning, job losses).

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Gross Fixed Capital Formation (GFCF) as a proportion of GDP, at constant prices, was 29.5 in 2016-17 against 30.9 and 31.3 in the previous two years. The government had flatly denied a decline in investment and cited FDI numbers. That myth now stands exposed.

Three major failures

All these confirm the arguments I have been making for weeks—that the government has totally failed to address the issues of declining investment as a proportion of GDP; sluggish credit growth; and non-creation of new jobs.

These trends were visible in early- and mid-2016. Instead of addressing those issues, the government relied on the advice of quacks, kept out the chief economic adviser, demonetised high-value currency notes, sucked out Rs 1,544,000 crore from the system and sent the economy into a tailspin. The government tried to justify demonetisation by putting up three objectives—end to black money, end to fake currency and end to terrorism. The objectives were unexceptionable, the minor difficulty being that none of them could be achieved—or was achieved—through demonetisation!

Ending corruption was added as an objective, but in the light of numerous seizures of cash in new `2,000 notes from government officers, that objective was quickly abandoned.

Cash is back

The narrative was then cleverly shifted to digitisation and the impractical idea of a cashless economy. A lot of people were taken in by the surge in non-cash transactions. That surge was temporary because cash was not available. Once cash became available, the balloon of digitisation was also punctured. Look at the RBI’s data released at about the same time as the CSO’s data. Electronic payments month-wise since November 2016 have been:

Cash is back, as the primary channel to exchange value. One day the RBI must disclose the volume/value of the demonetised currency notes that were returned to the RBI. It must also re-monetise the economy sufficiently to meet the needs of the people. When both numbers will be known, the believers in demonetisation will realise that India is back to the pre-November 8, 2016, days and will ask the inevitable question: ‘What purpose did demonetisation serve except to disrupt the economy and heap misery upon millions of people?’

It is time for the government to stop fooling the people that all’s well with the economy and that the current policies are working. They are not. The government must get on with the job of reviving the economy by relying on the advice of truly knowledgeable economists. They can start with the only one they have, Dr Arvind Subramanian.

Website: pchidambaram.in

@Pchidambaram_IN

  1. A
    Apte
    Jun 4, 2017 at 9:36 am
    1. Several questions need to be asked to Shri P. Chidambaram, though strictly speaking he is not an official spokesperson of the Congress. (a) What was the record of UPA I & II as regards inflation, industrial production, tax revenues mobilization and employment generation and so on? (b) Can Shri Chidambaram do an unbiased and thoroughly professional job of essing UPA I & II performance? (c) uming for a moment that NDA government with Shri Narendra Modi as Prime Minister has failed to perform during the last three years, can Shri Chidambaram compare performance of UPA I & II with that of the NDA government? (d) If NDA government is making efforts to promote a cashless economy, who is making efforts to defeat those efforts, and who is defending an economy based on cash transactions? 2. Though we know that Shri Chidambaram can defeat the most intelligent in a debate, can he not dispassionately arrive at a conclusion when he compares performance of UPA and NDA governments?
    Reply
    1. K
      Kiran
      Jun 4, 2017 at 10:45 am
      This is the general tone and tenor of all BJP supporters. When somebody is criticizing or finding issues in how you do things, they set out to attack the person rather than the criticism of the issues. In what way is it fair to ask P Chidambaram to compare UPA and NDA performance, when he is pointing out to certain data that shows the government in poor light ? In Karnataka, when Sri dyurappa was CM, when corruption issues were raised by opposition - his question was "neevu madilvae ?" - "Did you not do the same thing?". This is the general at ude of BJP supporters which people should be aware of. P Chidambaram is pointing out to data that investment is declining, GDP is fal and it would be only pertinent to respond and discuss those issues rather than discuss history, geography and civics.
      Reply
    2. V
      vip
      Jun 4, 2017 at 8:15 am
      Dear Chidumbaram, You written names of economists, who were advising UPA Government. I impressed by all of them and by you too, as you people talks lot of on the economy and giving excellent reasons for good or bad. But, as a ordinary citizen my concern was/is prices/inflation. And what I experiences during UPA II was nightmare, which is not there since last 2 years. I am able to match the ends without increment in my ry. So, what is the role of those big economists in life of ordinary citizen?
      Reply

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