No concrete data to estimate impact of demonetisation on GDP: Chief statistician

The impact of demonetisation on the country's GDP is very difficult to be assessed in absence of any concrete data, says chief statistician TCA Anant.

Talking to Business Today, Anant pointed out the limitations of the models analysts are using to come out different estimates on the impact of GDP after demonetisation.

"Most economic models talk in terms of money supply. Money supply comprises cash with public, deposits and other sources of liquidity. Money supply has become very complex with all the digital money sources. Cash is only one component of money supply and depending upon how broad the definition of money supply you take, the proportion of cash would change accordingly," says Anant.

He further says, "Different components of money are substitute of each other..they are not the perfect substitute of each other, but they are substitute of each other. What is the degree of substitutability, I don't know. I have no data, I will wait for data which will available after some time when we can make an assessment."

Hinting that people adopting alternative methods of payment may lessen the overall impact of demonetisation on GDP growth,  he said that people can substitute cash with other form of money -- bank transfer, digital payment, cheques, and even credits.

Ever since demonetisation was announced on 8 November, many economists, brokerage houses and analysts have come out with their estimates of the possible impact of the move on GDP growth rate. While most analysts see the GDP growth rate to slow down by around 1 percentage point, some analysts have even estimated that it could slow down the growth by 3 percentage points.

Demonetisation is likely to hit the informal sector the maximum. The informal sector, which analysts pegs at 40-50% of the GDP, is said to employs 80-90% of the country's workforce.

On the question of how big the informal sector is and how much of it is captured in the GDP data, Anant said that they measure the informal sector through National Sample Survey (NSS). These surveys are done once in five years. "Estimates which are derived from NSS are interpolated in the years after the survey using observable indicators. These indicators include tax collection, measurement of index of industrial production, etc.

On the size of informal sector, he said there are different definitions of informal sector--One way of defining informal sector is gross value addition originating from household sectors. That is around 43% of the GDP.

"Household sector in national accounts parlance refers to that part of the economy where value added takes place but the establishment concerns do not keep any proper records. These include small artisans, small merchants and traders," he explains.

On what percentage of our workforce is in informal sector, he says there are different definitions of informal sector for employment.

"One definition is workers who work in establishments which employs less than 10 employees. However, problem with this definition is that it is not  necessary that an establishment that employs less than 10 employees does not maintain records of these employees. For example, a lawyer's chamber can employ only two employees but they  might maintain proper records of these employees," he says.

Another definition of workers in informal sector, according to Anant, is people who work without regular wages.  As many 50% such people are self-employed and rest are casual labourers. "However, it is not necessary that they are working in establishments that employs less than 10 people. Many of them are employed in very large enterprises," he argues.