SBI on GDP debate: All companies under MCA 21 contribute to growth; shell firms will not change numbers

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Published: May 14, 2019 7:06:48 PM

Amid the reinvigorated debate over the existence of shell companies in MCA-21 data, the country’s largest lender has said that all companies registered under MCA contribute to GDP growth.

GDP data debateThe debate may find some resonance in the slowdown in investment, factory production, declining core inflation, said the SBI?s research report ?Ecowrap?.

Amid the reinvigorated debate over the existence of shell companies in MCA-21 data, the country’s largest lender has said that all companies registered under MCA contribute to GDP growth. Drawing an analogy with the financial transactions, the State Bank of India (SBI) has said that whether legitimate or illegitimate, all form a part of GDP and hence “shell companies will not change GDP numbers, purely going by definition”. The debate over the veracity of the GDP estimates arose after the report was recently released by the National Sample Survey Office (NSSO) saying 38.7 per cent of firms in the MCA-21 database were either missing or wrongly classified. The debate may find some resonance in the slowdown in investment, factory production, declining core inflation, said the SBI’s research report ‘Ecowrap’.

On probable growth slowdown, the report titled “Are we currently facing a quasi growth slowdown?,” said that the apparent nervousness could be seen in the trends shown by major stock indices. Adoption of proper policies could help to tackle the current growth slowdown as it’s transitory, the report added. However, until the interest rates are high enough, the economy could not fight the sluggishness, it said. The Reserve Bank of India (RBI) needs to bring about a cut of 25 basis points in the next monetary policy in June, it noted. Even though the cuts would not help fully, the transmission may improve, it added.

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The central bank should make sure that the asset and liability side of banks move in tandem, it added. The repo rate is directly benchmarked to non-volatile bank liabilities or current account savings account (CASA) that are mostly used for the purpose of transaction, the report said.

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