New Delhi: Prime Minister Modi has silenced critics of his notes ban with a 7 per cent GDP or Gross Domestic Product growth in the 3rd quarter, but experts and political rivals are asking two key questions. First, how did consumption go up when there was hardly any cash with people to buy anything? And second, why was there a steep downward revision of Q3 figures for the previous year?
Union Finance Minister Arun Jaitley told NDTV that the higher consumption simply revealed that people moved from the informal to the formal sector. "The GDP data shows that there is growth in formal economy," said Mr Jaitley.
But the key to achieving a 7 per cent growth in the October-December quarter - the months when the notes ban was enforced last year - seems to have been a reported downward revision in the GDP estimate for the third quarter of 2015-16. It was cut to Rs 28,30,760 crore from the original estimate of Rs 28,52,339 crore put out in February last year.
If the original GDP estimate for the relevant period in 2015-16 had been used in the calculations, the GDP growth in the third quarter of this fiscal would be just 6.2 per cent.
Top government officials told NDTV that upward or downward revision of GDP estimates is standard practice and even the current figures of 7 per cent will change as more detailed data comes in.
"Given the fact that a lot of data seems to be counter-intuitive, we expect some downward revision in 3QFY17 GDP as more data, particularly from the informal sector, is captured, said Teresa John, economist at domestic brokerage Nirmal Bang.
In the middle of crucial assembly elections, especially in Uttar Pradesh with several rounds of voting still to happen, it is the politics of GDP numbers that has taken center-stage.
"It's not about statistics. Ground reality is that demonetisation has hit our economy and the gross value addition has dropped by 110 basis points. And if the original figure of the third quarter of 2015 was not revised, then the GDP would have been only about 6.5 per cent," alleged Congress leader and former Union Minister Anand Sharma.
"How can a party put itself in a state that if the country's economic data does well....the party goes into mourning," said Mr Jaitley, brushing aside Mr Sharma's comment. He has described the Congress opposition to the notes ban as a "monumental blunder" and said the demonetisation, aimed at eliminating corruption and black money, was "ethically the right choice."
PM Modi had banned 500 and 1,000 rupee notes on November 8 last year, cancelling 86 per cent of the money in circulation at the time. A severe cash crunch followed and the Congress and other opposition parties have made it a key agenda to attack the BJP with in elections in five states. Whichever side wins will hold up the results as a referendum on the notes ban.
The Uttar Pradesh assembly election is seen as a semi-final before the national election of 2019, when PM Modi will seek a second term.