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Growth and consumption CSO estimates valid in post demonetization: Prof JD Agarwal
"Doubts for growth and consumption figures in some of the quarters are unfounded" said Prof JD Agarwal, Professor of Finance and Chairman, Indian Institute of Finance. According to him, doubts with respect to growth rate 7 per cent and consumption level over to 10 per cent during the quarter October – December 2016 are erroneous and unfounded because of boost in the activity, post demonetization.

Doubts have been expressed in some quarters including by some economists regarding the latest GDP estimates and consumption shooting up to over 10 per cent during the Oct-Dec quarter particularly when companies were reporting a steep drop in sales. It is stated that the impact of the demonetization on the economy has not been accurately, accounted in Central Statistics Office (CSO) estimates.

According to Prof Agarwal, there may be several factors to justify CSO estimates of consumption growth being over 10 per cent during October-December as compared to half of that rate proceeding in the three months periods ie July-Sep and recording GDP growth at 7 per cent.

One of the factors could be that in the post demonetization from November 8 onwards people used old currency as garbage and threw it for purchasing whatever they could. They spent heavily particularly on items which were allowed to be purchased using old currency such as medicines, medicare, petrol etc, there was an excessive use of old currency to avail of exemptions granted for the use of old currency said Prof Agarwal. Of course people deposited cash holding in the banks and also exchanged the old currency with the new ones.

Secondly, unscrupulous people holding unaccounted money hired a very large number of people, labour, household maids, servants etc to stand-up in the queues to exchange their money against a token payment. The token money paid to them as earnings of such people added to their purchasing power fueling demand thus increasing consumption, feels Prof Agarwal.

Thirdly, prior to demonetization, the purchases made through cash from unaccounted money were not adequately included in CSO estimates. After Demonetization, most of the transactions of production and consumption were accounted, feels Dr Agarwal.

Fourthly, a large amount of unaccounted money was also spent to purchase jewellery, diamonds and other items. Such purchases were recorded as sales prior to November 8, 2016 using fictitious billing resulting into a consumption level of over 10 per cent, which falls in Oct-Dec quarter.

Traders and businessman during the quarter Oct-Dec tried to show maximum sales and issued fake invoices so as to deposit old money in the banks opined Prof Agarwal.

According to Prof Agarwal, if it is considered that about 23 per cent of the economy was unaccounted, then in the post demonetization era, a major part of it has become accountable, resulting in higher production and consumption. An estimated GDP growth rate 7 per cent is also because of agricultural growth of 4.4 per cent this year as compared to 0.8 per cent last year.

Prof Agarwal feels that the gains of cleaning the economy from the menace of black money, counterfeit currency and naked display of excessive cash holdings in the economy outweigh the losses suffered in terms of lower growth rate, unemployement in the short term and the troubles faced by people in the process of demonetization.

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