GDP not impacted by demonetisation: Read what ‘experts’ had predicted

Finally, India’s GDP data for the quarter ended December 2016 is out. October to December 2016 was the quarter which included the demonetisation period, from 9th November 2016 to 31st December 2016. Various “experts” had given dooms day views regarding the demonetisation move:

Some termed it as “bad economics“. Some called it a “large shock to the Indian economy“. Some called it an example of “bad policy” Some suggested that India will face “dire consequences“. Some proclaimed that “The Deep Shock of Demonetisation May Devastate the Economy“. Some said that demonetisation would incur “high economic costs“. Some said “Demonetisation has turned India into world’s fastest slowing economy“. Some said “demonetisation may spell doom for the economy“.

The commentary was overwhelmingly negative, except for a few bright spots here and there. But most of the above commentary was in the form of abstract, immeasurable comments. To really objectively analyse this commentary, we need measurable predictions. And we did get them. Everybody who knew how to speak in English, began commenting on India’s GDP prediction. Here is what various people and agencies said:

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The “economist” former Prime Minister of India, Manmohan Singh had spoken after a long time, to claim that demonetisation could shave off 2% from the GDP rate.

Ambit Capital, predicted “a distinct possibility of GDP growth contracting in Q3FY17″ and said that the annual GDP growth rate could fall to 5.8 % year-on-year (from 7.3 percent).

An HSBC report predicted that India’s GDP for the December quarter could fall down to 5%. For reference, India’s GDP rate was 7.4% for the earlier quarter, and was 6.9% for the same quarter last year.

Another HSBC report quoted by media suggested that GDP would fall by 1%.

Estimates of Associated Chambers of Commerce and Industry of India pointed to a contraction of 2.5 % of the GDP

Analysts polled by Reuters had expected a 6.4% growth rate in the quarter to December.

Various other GDP predictions can be read here.

To cut things short, the GDP predictions ranged from a low of 5% to a maximum of 6.4%. But the final data which came out yesterday proved to be egg on the face of all of the above. India’s economy grew at a healthy 7% in the fiscal third quarter. It was also higher than China’s 6.8 percent growth for the last three months of 2016. India’s GDP rate was also higher than BRICS nations:


One of the few who got the forecast almost bang-on was economist and columnist Rupa Subramanya, who had predicted a minor 0.4-0.5% correction:

Now that the hard numbers have slapped some analysts on the face, the first reaction is pure disbelief. Even GDP numbers are being doubted now, and more such “doubts” will emerge, since the data doesn’t match their predictions.

“I am totally surprised and stunned to see this number. Perhaps this data is not capturing the impact of demonetisation,” said Aneesh Srivastava, chief investment officer, IDBI Federal Life Insurance Co. Reuters, whose poll got the prediction wrong, went on to doubt the credibility of the data. Excuses are being bandied about that the Government will have to eventually revise the data. Congress on its part has even begun trending a hashtag “#ModiFudgedGDP”.

Next, one may expect media hit jobs on the GDP data as well. For example, last year, media reports claimed that India had admitted “errors” in its GDP data. The fact remained though that economic illiteracy had led to this foolish claim, which we had destroyed here.

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