The young and those with higher education report a 16% unemployment rate, showing that they have been the worst hit, the report prepared by the Centre for Sustainable Employment (CSE), an arm of Azim Premji University, says.

In the absence of recent government data on jobs, the report is based on data from the National Sample Survey Office and the Employment-Unemployment Survey (EUS) of the Labour Bureau for 2015-16, after which the labour ministry discontinued the survey. It has also examined surveys by the Bombay Stock Exchange-Centre for Monitoring the Indian Economy (CMIE) for the past two years. 

A 2018 study prepared for the Prime Minister’s Economic Advisory Council has claimed that the Indian economy generated 12.8 million jobs in 2017. However, the CSE report contradicts this claim. “Unfortunately, this optimistic conclusion depends on selective use of data and unjustified assumptions,” the report says.

Below are some of its most important findings.  

India is experiencing jobless growth
The report has lent credence to the argument that India’s fast economic growth has not generated jobs. “Even as GDP (gross domestic product) growth rates have risen, the relationship between growth and employment generation has become weaker over time,” it says, adding that a 10% increase in GDP now results in less than 1% increase in employment. With a 6.8% annual growth rate of GDP over five years to 2015, India experienced a 0.6% increase in jobs, it has found.

The situation was better in earlier decades. In the 1970s and 1980s, when GDP growth was around 3-4%, employment growth was around 2% per annum, about three times the current growth rate. Since the 1990s, and particularly in the 2000s, GDP growth has accelerated to 7% but employment growth has slowed to 1% or even less, the report says.

Annual Employment Growth Rate Compared With GDP Growth Rate

Source: Centre for Sustainable Employment

Worst hit are the young, and those with higher education
It used to be said that India’s problem is not unemployment but underemployment and low wages. A new feature of the economy is a high rate of open unemployment–where people do not have job opportunities in tune with their education or skills–the report shows. It puts the figure for open unemployment at over 5% currently. It is highest–about 16%–among the youth and those with higher education, it says.

Almost all the states of the country have been experiencing unemployment, but the northern states including Rajasthan, Uttar Pradesh, Uttarakhand, Bihar, Chhattisgarh, Punjab and Jammu and Kashmir are the worst performers, with rates ranging from 6% to 30% (for 2015).

Wages rising but remain way below minimum recommended salary
Wages grew in most sectors at a 3-4% annual rate over 15 years to 2015. Yet, 67% of households reported monthly earnings of up to Rs 10,000 in 2015, 44% less than the minimum salary of Rs 18,000 recommended by the Seventh Central Pay Commission (CPC) for employees on the lowest pay-scale such as sweepers and peons, as per the report. People earning Rs 50,000 or more per month constitute 1.6% of the Indian workforce.

“This suggests that a large majority of Indians are not being paid what may be termed a living wage, and it explains the intense hunger for government jobs,” the report says.

Over five years to 2015, agriculture recorded the highest annual growth in wages, at 7%, followed by the unorganised services sector with a 4% growth.

During the same period, unorganised manufacturing recorded better annual growth in wages of 4% than organised manufacturing of 2%, the report shows.

The growth of jobs in agriculture comes with a caveat, however: It is based on an assumption that employment is available for 25 days a month and 12 months a year. “However, this is mostly not the case in practice. Hence, these numbers should be treated as an upper bound,” the report says.

Regular jobs pay poorly, contract jobs increasing
Regular jobs, valued for financial security, are not fetching good remuneration, with 57% of regular employees earning Rs 10,000 or less a month, well under the CPC recommendation, according to the report.

While the average monthly salary of regular workers was Rs 13,562, non-regular workers earned Rs 5,853 per month in 2015, the report said. 

At the same time, jobs in the sectors known for stable employment are becoming precarious.

An increase in employment in organised manufacturing was an opportunity to provide remunerative and stable employment. Instead, the share of contract work and other precarious forms of labour has grown since the early 2000s, the study has found.

Field studies by the authors of the report found that two of the most common categories of contracts were: Trainee, and apprentice workers who perform the work of permanent workers at a fraction of their wages. “This is one way in which labour laws are being circumvented by manufacturing firms,” it says.

Women earn 65% of men’s earnings, gap narrows with education
At an all-India level in 2015, women workers earned Rs 5,200 a month on average, about 65% of the average male earnings of Rs 8,000, as per the report.

In 2015, the percentage of men reporting earnings of up to Rs 5,000 was 43%, compared with 71% of women. About 82% of male and 92% of female workers earned less than Rs 10,000 a month, the report has found.

Share Of Men And Women In Different Earnings Brackets

Source: Centre for Sustainable Employment

The gender wage gap varies widely. Women earn between 35% and 85% of men’s earnings, depending on the type of work and the level of education.

The disparity is the largest among own-account women workers, who are self-employed and also provide employment to others–say, small shop-owners or a home-based poppadom (‘papad’) manufacturers. The wage gap is the least in casual agriculture work, where women earn about 86% of men’s earnings, the report says.

The gap narrows significantly with a rise in women’s education beyond the higher secondary level. Women with education of post graduation and above earn 88% of men’s earnings, as per the report.

Share Of Women’s Earnings Against Men’s In Different Employment Types

Source: Centre for Sustainable Employment

Gender Earnings Gap By Education Level

Source: Centre for Sustainable Employment

The share of women in the paid workforce has been declining across major sectors over the 11 years to 2015. In agriculture, the share of women dropped by six percentage points from about 35% in 2004 to 29% in 2015. It dropped by four percentage points in manufacturing, from 26% in 2004 to 22% in 2015.

The northern and western states of India perform the worst in terms of women’s participation in the paid workforce. While only 20 women are in paid employment for every 100 men in Uttar Pradesh and Punjab, this number is 50 in Tamil Nadu and Andhra Pradesh, and 70 in the north-eastern states of Mizoram and Nagaland, the report adds.

Social restrictions and housework, often blamed for women’s shrinking participation in the labour force, are not the primary factor, this report finds. “Field studies suggest that lack of available work, rather than social restrictions, may be preventing women from entering the labour force,” it says.

Caste earnings gap more than gender earnings gap  
Workers from the Scheduled Castes (SC) and Scheduled Tribes (ST) are over-represented in low paying occupations (such as agriculture and fisheries, as well as crafts and trade) fetching Rs 4,000 to 8,200 monthly. They are severely under-represented in the high paying occupations (managerial, technical, clerical and professional) fetching Rs 13,000 to 20,000 monthly, according to the report. The trend is opposite for workers hailing from the “upper” castes.

“On the other hand, both SC and ST groups are much better represented in public administration indicating the success of reservation policies over the years,” the report says.
The caste earnings gap is more than the gender earnings gaps, it finds: SC workers earn only 56% of upper-caste earnings, while workers from STs and other backward castes earn 55% and 72% of upper-caste earnings, respectively.

(Tripathi is a principal correspondent with IndiaSpend.)

Courtesy: India Spend
 

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Secularisation precedes economic development and not the other way around as is commonly believed, said the study, Religious Change Preceded Economic Change In The 20th Century, published in the journal Science Advances. The study used data from the World Values Survey, which mapped people’s changing values and beliefs, to estimate the importance of religion in the 20th (1900-2000) century.
 
India stood 66th among 109 nations ranked by secularisation. China was first, Pakistan 99th, Bangladesh 104th and Ghana last.
 
India’s per capita GDP per annum grew 26 times between 1958 and 2018. “This increase could have been higher if Indians were less rigid in their religious views,” co-author Damian Ruck, a post-doctoral researcher at the Bristol Centre for Complexity Sciences, University of Bristol, told IndiaSpend.
 
What are the dominant religious beliefs that could be holding back India’s growth from reaching its maximum potential? IndiaSpend research found that these relate to the two most vulnerable social groups in India — women and marginalised castes.
 
Both groups are allowed to play a limited role in India’s economy. Consider caste: The proportion of scheduled-caste individuals in the lowest wealth bracket was close to thrice that in other castes — 26.6% as against 9.7% — according to the National Family Health Survey 2015-16 (NFHS-4), as IndiaSpend reported in February 2018.
 
Social and cultural factors restrict women from working outside their homes in India, IndiaSpend reported in this nation-wide investigation. At just 27%, India’s female workforce participation is amongst the lowest in South Asia. Between 2004-5 and 2011-12, the year of the last census, 19.6 Indian million women left their jobs, according to an April 2017 World Bank report.
 
India’s secularisation (and its tolerance rank, 69th) would suggest that its per capita GDP per annum should be higher than it actually is. “Our model thinks that India should be around Rs 457,015 ($6500) per person richer than it actually is,” said Ruck. “What this suggests is something else is holding back the Indian economy but that is for Indian specialists to analyse.”
 
But India would still stand to benefit considerably from increased levels of secularisation, estimated the author. “If India were to reach secularisation levels seen in western Europe (like Germany, which was ranked 6th of 109 nations), then it could expect to see a Rs 70,175 ($1,000) increase in per capita GDP over 10 years, Rs 196,490 ($2,800) over 20 years and Rs 350,875 ($5,000) over 30 years,” said Ruck.
 
To put this in perspective, India’s per capita GDP increased 2682% by Rs 133,613 ($1904) over the last 60 years, from Rs 4,982 ($71) in 1958 to Rs 138,595 ($1975) in 2018.
 
China, whose development India aims to emulate, has been ranked first in secularisation. The US, a developed country where hate crimes in the 10 largest cities touched a decadal high in 2017, stood 57th.
 
It needs to be noted that the study, jointly conducted by researchers at the University of Bristol in the UK and the University of Tennessee in US, did not establish that an increase in secularisation drives economic activity. It only established that secularisation precedes high growth. It did, however, rule out the belief that religion loses its importance once material development begins to satisfy the needs of a society.
 
Why Indian economists can’t ignore links between economy, religion
 
In India, religion has not lost its place in society though the country has seen economic development: More than 90% respondents rated religion as “very important” or “rather important” in the latest round of the World Values Survey.
 
India and Kyrgyzstan are the only two nations where the percentage of people who considered religion an important part of their lives grew by over 10 points over the decade through to 2014, with India logging 12.1% growth, from 79.2% to 91.3%, according to the survey.
 
A key takeaway of the new study is that policy makers looking to boost economic growth, particularly inclusive economic development—a stated aim of the incumbent central government–need to consider the linkages between religious thought and economy.
 
“Economic theory tells us that a competitive environment–one without different types of stratification, of markets–produces the best possible outcomes for consumers and society,” said Amaresh Dubey, a professor at the Centre for the Study of Regional Development, School of Social Sciences at the Jawaharlal Nehru University. “But by precluding a huge section of the population, women and scheduled caste people, from equal access to resources such as capital and know-how, in India, religion majorly impedes economic activity.”
 
Women are, in large part, low-skilled informal workers in India, engaged in work that requires low productivity and offers low pay, as IndiaSpend reported in March 2018. The inequality between what men and women earn in India is far worse than gender skews in pay noticed in South Africa, Brazil and Chile, if we consider the gender gap in median earnings of full-time employees.
 
Caste is another divisive factor in development. Scheduled-caste individuals are among India’s poorest people, as we said. “Caste, kinship or family, either or all these can hamper economic progress if they impose restrictions,” said Andre Beteille, professor emeritus, department of sociology at the University of Delhi.
 
But sociologists see a problem: Initiatives to get India’s women and scheduled castes better access to resources could boost overall economic activity and promote individual well-being, but they are unlikely to change their social status, according to Dubey. Casteism is so deeply entrenched in India that even scheduled caste converts to Islam and Christianity continue to carry their dalit status, he said.
 
“As religions go, Islam and Christianity do not practice caste segregation but we see dalit converts call themselves dalit Christians and scheduled caste Muslims,” he said.
 
Development will be ‘short-term’ in times of communal strife
 
India’s per capita GDP has trended upwards since 2014, according to the United Nations’ World Happiness Index 2018, IndiaSpend reported in May 2018.
 
India also saw rising intolerance in this period, available data show. The year 2017 recorded the highest death toll (11 deaths) and the most number of incidents of hate violence (37 incidents) related to cows and religion since 2010, according to an IndiaSpend database that records cow-related hate crime.
 
Does this simultaneous increase in the annual per capita GDP and the decline in secular values defy the findings of the new study?
 
Apparently not. “What we measured are the slow changes in public opinion on secularisation and tolerance that occur over many decades as new generations replace older ones,” explained Ruck.
 
Nations can see a rapid increase in intolerance over the short-term but it can be associated with different forces influencing public opinion, he said. The scholar described these as “period effects”.
 
“In the current political climate, prominent identity qualifiers such as caste, religion and gender are being stoked for short-term gains, creating negative emotions of distrust, hate, prejudices and so on against the ‘other’,” IndiaSpend reported in May 2018.
 
But “rapid changes are not linked to sustained economic development and tend to be temporary and average out over time”, said Ruck.
 
(Bahri is a freelance writer and editor based in Mount Abu, Rajasthan.)

Courtesy: India Spend
 

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In an interview with Newsclick, Prof. Abhijit sen explains that the new GDP estimates for 2016-17 released by CSO strongly point towards a decline in growth rate due to demonetisation. He also said that since the data of CSO does not fully capture the unorganised sector, the negative impact of demonetisation on GDP growth was likely higher. If one were to only look at the core sectors, excluding agriculture and public expenditure, the growth rate falls as low as 3 % in the last quarter of 2016-17. According to Prof. Sen, it is very likely that the impact of demonetisation on GDP will continue beyond 2016-17.

Thumbnail Image Courtesy: The dollar business

Courtesy: Newsclick

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Perhaps no other public policy debate in post-independence India has seen as much of an “inversion of reason” on the part of the government as the demonetization debate. 

When critics were pointing, on the basis of government statistics themselves, to the palpable failure of the demonetization measure to achieve its purported objective, which was to cripple the black economy, the government kept harping, in its justification, on the extraordinary “boldness” of the move. 

Its position in effect amounted to saying that any move, no matter how irrational, is justified if it involves “courage”, i.e. invokes “shock and awe”, which was a sheer “inversion of reason”. 

This “inversion of reason” is carried much further now by the use the government is making of the latest GDP estimates. One just has to step out of one’s home to the grocery shop round the corner to acquaint oneself of the drop in business which the grocer has suffered owing to demonetization. 

The shopkeeper from whom I buy my grocery had told me that he had experienced a 50-60 percent drop in his business in the immediate aftermath of demonetization; he says that even now he is still facing a 20 percent drop in business compared to its pre-demonetization level. What he says about the drop in his business is echoed by countless other shopkeepers all over the country; and numerous journalists, academics and observers who have talked to shopkeepers across the country have testified to this fact. 

The recessionary effect of demonetization on the economy in short is an indisputable and established fact; if the GDP statistics of a government organization do not bear this out, then that should be an occasion not for asserting that there has been no recessionary effect, but for asking why they do not bear this out, i.e. what is wrong with the estimates. 

And yet this is not what the government is doing. On the contrary it is asserting that there has been no shortfall in demand and mocking its critics on this score, with the Prime Minster even targeting a person of Professor Amartya Sen’s eminence through some fatuous and meaningless remarks about Harvard and “Hard Work”. This constitutes an “inversion of reason”. It is like the naked emperor strutting around in his nakedness and ridiculing all those who had called him naked with the words: “See how wrong and stupid you were. My courtiers have shown I am fully clothed!” 

Arthur Bowley the renowned British statistician who had taught for years at the London School of Economics used to say: “The most significant facts of social life cannot be exactly quantified, but they can be directly observed”. In India today we are being asked to disbelieve what we directly observed in consequence of demonetization, on the basis of some totally spurious quantification. And that constitutes an “inversion of reason”. 

The issue that arises because of the latest GDP estimates provided by the Central Statistical Organization, therefore, is not whether demonetization has had a recessionary impact (which it indubitably has had), but why these estimates do not capture it. And three reasons have been adduced in the writings of some distinguished quantitative economists who are either working or have worked within the government. 

The first reason is a downward revision of the third quarter GDP estimate for 2015-16, which provides the base for calculating the growth rate in the third quarter of 2016-17. (Growth rates for any period are usually calculated over the corresponding period of the previous year). The GDP figure for the third quarter of 2016-17 (October-December) when the impact of the demonetization of November 8 is supposed to have been felt, is estimated to be Rs. 30, 27, 893 crores. How much of a growth it represents over the previous third quarter GDP depends upon what the latter is estimated to be. And here we come to the crux of the matter. 

The third quarter GDP estimate for 2015-16 announced on February 9, 2016, was Rs.28, 52, 339 crores, on the basis of which the growth rate for 2016-17 third quarter comes to 6.2 percent. On May 31, 2016, this figure was slightly revised downwards to Rs.28, 51, 682 crores, which still implies a 6.2 percent growth-rate for 2016-17. Since, with these estimates for 2015-16, the third quarter growth rate for that year, i.e. for 2015-16, comes respectively to 7.3 percent and 7.2 percent, there has clearly been a deceleration of growth in 2016-17, as the critics of demonetization have been predicting, by at least one percentage point. 

But the CSO on February 28, 2017, suddenly reduced the estimate of GDP for the third quarter of 2015-16 to Rs. 28, 30, 760 crores, which gives a third quarter growth rate of 7 percent for 2016-17. There is in other words a jump in the growth rate from 6.2 to 7 percent simply by revising downwards the base upon which this growth-rate is calculated, a point that has been made by Soumya Kanti Ghosh who is the Chief Economic Advisor of the State Bank of India. Why there should have been such a downward revision by the CSO remains a mystery. The obvious explanation that comes to mind is a “doctoring of statistics” on the part of the CSO at the behest of the government. 

The second reason why the GDP estimates do not capture the impact of demonetization, has simply to do with the fact that of late the GDP is being estimated not on the basis of value added figures taken from the producing units, but from company balance sheet data. This obviously means a lower coverage for informal sector producers who are not listed as companies and who are the ones that have faced the brunt of the impact of demonetization. The very method of estimating GDP that is adopted of late by the CSO therefore is simply tailor-made to underestimate the impact of demonetization. 

The third reason, put forward by Pronab Sen who had been until recently the Chief Statistician of the Government of India, is as follows. The GDP estimates at market prices, which are the centre of attention at present, are arrived at by adding to the gross value added the net indirect taxes. Because of demonetization the trade channels to which producers sell their goods and which make payments for these goods over a certain period of time, paid promptly to the producers through currency notes that had been demonetized, and the producers in turn made larger tax payments than usual to the government in the form of such demonetized currency. 

The net indirect tax collections therefore were far larger than usual, which, when added to the gross value added, boosted GDP figures significantly, and hence the growth rate too. The increase in growth rate that the CSO shows, far from showing the absence of any impact of demonetization, is attributable partly at least to a bizarre consequence of it. 

These three reasons are additive. The fact that there is a suspicious downward revision in the 2015-16 third quarter GDP estimate, the fact that the informal sector is inadequately represented in the GDP estimates, and the fact that demonetization brought in larger net indirect taxes than usual, conjointly contribute to an exaggeration of the growth rate figure for the third quarter of 2016-17. 

The 7 percent growth rate for the third quarter of 2016-17 claimed by the government which would come down to 6.2 percent if the base figure is not adjusted, would come down further if the under-representation of the informal sector in GDP estimates is taken note of, and would come down still further if the effect of arbitrarily large net indirect tax collections is additionally taken note of. 

Compared to the 7.2 percent growth rate in the third quarter of 2015-16 (over the previous year’s third quarter), if the unrevised figures are taken, the drop in growth rate in the third quarter of 2016-17, in the wake of demonetization, therefore could well be about 2 percent which is what many of the critics of demonetization had been anticipating. 

The Narendra Modi regime for many has been reminiscent of the Emergency of the mid-seventies, though even the Emergency, while witnessing the use of State power against opponents, had not seen the use of vigilante groups, consisting of hooligans, to stifle the freedom of thought and expression as we see today. But the CSO had been used by the ruling government of that time to doctor statistics in the run up to the Emergency, exactly as it is being used today. 

The only saving grace at that time in this shameful use of a government organization for propaganda purposes had been the fact that the doctored statistics had not flown in the face of direct observation; such alas is not the case today.
 

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People queue up outside an ATM kiosk to withdraw cash in Hyderabad on December 21, 2016. The government accepted that the demonetisation exercise reduced economic activity–represented by growth in gross domestic product–by 0.25%-0.5% relative to the baseline of 7%
 
The forecast corroborates the growth estimate of 7.1% by the Reserve Bank of India, and is close to the estimate of 6.6% by International Monetary Fund.
 
GDP growth is expected to remain fairly stable at 6.75%-7.5% in 2017-18. “Even under this forecast, India would remain the fastest growing major economy in the world,” the Survey said.
 
“There have been reports of job losses, declines in farm incomes, and social disruption, especially in the informal, cash-intensive parts of the economy, but a systematic analysis cannot be included here due to paucity of macro-economic data,” the Survey admitted.
 
Finance Minister Arun Jaitley presented the survey to both houses of Parliament on the first day of the Budget Session 2017.
 
The survey highlighted three major risks to growth:
 
1) How far the effects of demonetisation could linger into the next financial year (2017-18), especially if uncertainty remains on the policy response;
 
2) Geopolitics could increase oil prices more than forecast; and
 
3) Trade tensions among major countries, triggered by geo-politics or currency movement.
 
“The one significant upside possibility is a strong rebound in global demand and hence in India’s exports,” the Survey said. “There are some nascent signs of that in the last two quarters. A strong export recovery would have broader spillover effects to investment.”
 
The Survey also highlighted the need for the formation of a public asset rehabilitation agency to resolve big and complex debt cases, Business Standard reported on January 31, 2017.
 
Divided into 14 chapters, the Survey discussed other issues, such as job creation, migration, health and fertility indicators and goods and services tax–an indirect tax that will replace octroi and other local taxes–expected to come into force in July 2017.
 
The first-ever estimates of internal work-related migration, using railway passenger data for the period 2011-2016, indicate that 9 million people migrated between states every year, the Survey said, highlighting the increased migration across the country.
 
The Survey devoted an entire chapter to the idea of universal basic income (UBI): “It is premised on the idea that a just society needs to guarantee to each individual a minimum income which they can count on, and which provides the necessary material foundation for a life with access to basic goods and a life of dignity.”
 
A UBI that reduces poverty to 0.5% would cost between 4-5% of GDP, assuming that households in the top 25% income bracket do not participate in the programme, the Survey said. “On the other hand, the existing middle class subsidies and food, petroleum and fertilizer subsidies cost about 3% of GDP,” an official release said.
 
“Time is ripe for discussion, and not implementation of Universal Basic Income (UBI)”, chief economic advisor Arvind Subramanian said at a press conference.

Courtesy: India Spend
 

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The survey was conducted in the months of December 2016/ January 2017 and drew responses from leading economists representing industry, banking and financial services sector. The Central Statistical Organisation had estimated a GDP growth of 7.1% for 2016-17 earlier in January.

According to the Ficci survey, the agriculture sector is expected to witness an uptick in 2016-17 on the back of a good monsoon which is expected to support agricultural production. However, both industry and services sectors are anticipated to moderate. Industry and services sector are expected to grow by 5.7% and 8.5%, respectively in 2016-17.

“The decision of the government to demonetize high value currency notes has had an impact on the cash dependent sectors primarily belonging to the informal economy. This is expected to cause some slowdown in industrial and services sector growth,” the survey observed in its findings.

The economists had a divided view on the timeframe by which the economy would return to normalcy. Although some believed that things will start rolling back to the way they were in the pre-demonetization days by the end of the current quarter (March 2017), others felt that it could take at least two more quarters for things to fully settle (June 2017).

Economists pointed out that India’s economic growth was being propelled by government spending and private consumption and the latter has been hit due to the demonetization move. This will affect recovery in investments and overall growth.

The participating economists opined that demonetization exercise would lead to a healthy correction in many sectors of the economy, especially in the real estate segment. A majority of the respondents expect the RBI to maintain status quo with regard to repo rate on account of domestic and global factors in its bi-monthly monetary policy to be announced in the first week of February 2017. However, they anticipate the accommodative stance to continue with a probable rate cut of 25 bps in first half of the financial year 2017-18.

The economists felt that the forthcoming Union Budget is likely to be expansionary and some fiscal stimulus is on the way from government’s side. The median growth forecast for IIP has been pegged at 1.5% for the year 2016-17, with a minimum and maximum range of (-) 2.1% and 2.9%, respectively. This is marginally lower than the estimate of 1.7% put across in the last survey round.

The median forecast for Wholesale Price Index based inflation rate for 2016-17 has been put at 3.4%, with a minimum and maximum range of 3.1% and 3.5% respectively. WPI inflation is projected at 3.8% for the fourth quarter of 2016-17.
 

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The report said even though an objective assessment of the demonetisation exercise on output growth is a difficult one now, it expects GDP growth to be decisively lower than 6 per cent in the third quarter and in the fourth quarter, it could only make a gradual comeback, it said.

The report estimates GDP growth for the second half and for the full year at 6.3 per cent and 6.7 per cent, respectively with a downward bias.

“Our assessment of a 6.7 per cent GDP growth (in FY17) with a downward bias is based on the premise that the liquidity shock has led to a drastic consumer spending shock,” an SBI Research’s Ecowrap report said.

It said even as RBI has replaced around 44 per cent of the banned currency, the money is not coming back decisively into the financial system as people are averse to spending.

“This, in turn, is leading to a vicious cycle of banks being unable to replenish cash thereby precipitating the shock.”

Earlier in the day, the CSO pegged GDP growth at 7.1 per cent, from 7.6 per cent in 2015-16, mainly due to slump in manufacturing, mining and construction sectors. However, the data did not factor in ‘volatile’ post-demonetisation figures.

The report said the service sector growth rate is indeed having a significant downward bias. It said sectors like construction, real estate, cement and FMCG are likely to witness a double-digit decline in sales in the third quarter.

The possible solace could be that the companies in the construction sector with a high share of government orders are likely to be less impacted, it said.

“On the whole, the upside to a lower than anticipated GDP estimate in the current financial year will give the government a first mover advantage in terms of a higher than normal trend nominal GDP in the financial year 2017-18.”

This may allow an absolute expansion in fiscal deficit numbers for the financial year 2017-18, without harming the fiscal deficit ratio in totality, it added.

Courtesy: Janta Ka Reporter
 

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