One-quarter dip in GDP growth not a disaster: T C A Anant

He says necessity for GST was long felt and it will facilitate much faster growth

While many economists have linked subdued growth in the first quarter of financial year 2017-18 to the lingering effects of demonetisation, Chief Statistician T C A Anant suggests there is no basis to such commentaries. He also tells Indivjal Dhasmana that the necessity for a goods and services tax (GST) was long felt and it will facilitate much faster growth. Edited excerpts:

Commentaries on GDP data by various experts have attributed slow growth to lingering effects of demonetisation, besides other factors. Why are you de-linking the two?

I am not sure what is the basis of people saying that there was a lingering impact of demonetisation on the economy in the first quarter of FY18. During the third and fourth quarters of 2016-17, the argument was made that cash shortage had affected demand and, therefore, led to a slowdown. Subsequent to the middle of the fourth quarter, cash shortage was not really an issue. The trajectory seemed to have stabilised by then. If that is the case, what is the basis of these commentaries? Demonetisation may have had longer-run behavioural changes, impacting GDP growth. But, those could be both positive and negative. Behavioural impact could be in the form of greater digitisation and greater transparency. But, then, one has to articulate what the lingering impact means. So far as cash shortage is concerned, it was not relevant in the first quarter of FY18.

One reason you gave for lower GDP growth numbers is that de-stocking happened prior to the GST roll-out. While it has led to low manufacturing growth, trade growth in double digits should have neutralised it. Don’t you think so? 

It’s not as simple. It depends on value added in manufacturing and value added in trade. Companies, in order to clear stocks, create sales incentives. It is not necessary that net value added as a consequence goes up, even as your total sales go up. A part of the chain, traders, may benefit because companies are helping them sell more. It is not necessary that the entire chain benefits. 

You also attributed low GDP expansion to the rise in wholesale price deflator. Was it the case that deflator of inputs rose more than final products?

That is being implicitly assumed, but I have not calculated it. There are two deflators — one is for intermediate goods, and the other is for final goods. The consumer price index (CPI) is a closer proxy of final goods. CPI growth was lower than WPI in this quarter. The reason I am cagey about answering your question directly is, ideally, we should do it company by company. What are final goods for one company may not be so for the other. I am not giving you a precise calculation, but it is likely to be correct. 

You said this process of high price deflator for inputs will fade away. Why will that be?

By the time we come to the second quarter, this price behaviour may start tapering off. 

Does it mean the second quarter will see higher GDP growth?

On these grounds, it is likely to see restoration of normal levels. 

What do the data tell you about investments? While gross fixed capital formation grew by over 1 per cent in Q1 of FY18 from contraction in Q4FY17, its share in GDP fell further.

Corporate data which we have examined so far do not indicate that there has been a fresh uptick in private investments. 

What does the deceleration of GDP growth to a three-year low indicate? Is it a matter of grave concern?

Given the number of policy regime changes that have been happening, the GST itself is such a big change that I would not view this as anything more than structural adjustment. The international scenario has not shown any improvement; it has remained the same for some time. We are taking a variety of steps to improve the possibilities of domestic growth. Implementation of GST was long felt as one of the major efforts that will lead us to that direction. We are in a sense putting our house in order to facilitate much faster growth. A lot of people want both — faster growth and putting the house in order — at the same time. The conversion of what needs to be done into outcomes in the economy is always a process. From the viewpoint of the trajectory ahead, the economy is gradually looking healthier. You have done the necessary hard work. You have put in place mechanisms which have eased cost of doing business in the economy, the GST being the major element towards that. Implication is that your growth potential has improved domestically. 

Will those prospects materialise in the coming quarters?

It does not work like instant therapy, instant actions and instant reforms. One quarter-dip is not a disaster. Similarly, one quarter-rise does not mean everything has been solved. Everything is not instantaneous. What is happening is that the economy is becoming stronger. You are getting ready to start accelerating. That preparatory work is essential. The fact that you have spent some time in preparatory work is no criticism.