Chidambaram: “Q4 numbers will confirm economy badly hit”

The NDA Government may well flaunt the latest CSO number to propagate the tale—especially in the battlefield of Uttar Pradesh—that demonetisation had hardly affected India’s growth story. Former Finance Minister P Chidambaram, however, has punctured that claim—by citing government data. He pointed out how there has been a “declining trend” in the economy even before demonetisation, which interrupted India’s economic story. And, the fourth quarter numbers would confirm that the economy was “very badly hit” by demonetisation, said Chidambaram.

“The dazzle of the number can’t hide the fact that crores of people were devastated by demonetisation and immiserised,” said Chidambaram on Friday at a seminar on ‘Untold Stories of Demonetisation—Its impact on Indian Economy’ that was organised by the Congress party. He was referring to the Central Statistics Office (CSO) that had on Tuesday pegged the GDP growth for the October-December period at a baffling 7%.

The former FM countered the government’s claim by citing official government data on gross value added (GVA). The Centre had changed the methodology of calculating GDP in January 2015 and made it GVA-based.

In calculating GVA, while taxes collected are added wherein subsidies are subtracted. “Addition of taxes is no reflection of growth,” he said. He indicated that in 2016-17, the tax mop-up had gone up substantially as excise duties—especially on petroleum products—had been increased many times. This additional tax revenue was also shown as a reflection of growth.

Chidambaram cited the GVA growth rate for each quarter since the time the Narendra Modi government took office in May 2014. While the first two financial years didn’t show any particular trend, it was different for the current fiscal. The year 2015-16 had ended with the fourth quarter growth pegged at 7.42%. However, since then there has been a decline. The growth rates for the first, second and third quarters of 2016-17 were 6.9%, 6.69% and 6.61% respectively. “The four numbers show that, in GVA terms, it is a declining trend. The fourth quarter numbers will tell whether this declining trend will continue or if the economy is in fine fettle.”

“But, even these numbers hide something,” he said. Demonetisation didn’t affect three sectors—government expenditure, agricultural ‘production’ and utilities.

The government, as per the CSO, was unaffected by demonetisation and increased spending; agricultural ‘production’ was bountiful as demonetisation can’t affect the monsoons, which was good this fiscal but the price for the produce fell due to the cash crunch; and, utilities such as electricity, water and so forth were basic necessities that people had to pay for. In fact, with the NDA government having allowed payment of old utility bills with the old ₹500 and ₹1,000 notes, many took the opportunity to pay up pending bills.

“So, the real way to look at gross value addition is to look at the ‘net’ of government expenditure, agriculture and utilities,” said Chidambaram. Then, he pointed out that the numbers would change to 8.76% for the January-March period of 2015-16; and the first three quarters of 2016-17 would be 7.35%, 6.47% and 5.73% respectively. “It dropped almost by 3%. It is clear to anyone that the economy has slowed down even before the full impact of demonetisation,” he said. When the fourth quarter numbers come, he predicted that it would “confirm that the economy has declined and was hit very badly hit” by demonetisation.

However, he said, the Modi government wouldn’t answer any of these questions on its own numbers. “We have the most anti-intellectual government in the world,” he said. “It even thinks that Amartya Sen, professor at Harvard is undeserving of any respect. It thinks that Oxford, Cambridge, Harvard are all useless,” he lashed out. He also said that it would take the economy 12-18 months to recover from the “devastating” impact of demonetisation. “So, you will see this impact into 2017-18 and may be right up to the end of 2017-18,” said Chidambaram.