'Note ban's real impact will come in Q4'

Pronab Sen, the government's former chief statistician, says contrary to perception, GDP growth won’t be drastically hit in the present quarter.

While popular perception is that the demonetisation effect would drastically reduce economic growth in the ongoing quarter and by a bit in the next one, Pronab Sen, the government's former chief statistician, tells Indivjal Dhasmana it will be the other way round.

Various estimates say growth in gross domestic product will drastically reduce in the third quarter (October-December) and even turn negative, and the slowdown will last in the fourth quarter (January-March) as well.

In the third quarter, agriculture will do well, as we basically measure it in terms of quantity; it is a volume index. By the time demonetisation was announced, kharif crops had already been sown. Also, people will manage their transactions for one and a half months somehow through their savings, which is the period of demonetisation in the quarter.

The real impact will come in the fourth quarter. I believe it will be much worse than the third. Rabi production would be impacted. Besides, people’s savings will be exhausted by then.

The government’s effort to push for digitisation would bring many in the unorganised sector to electronic payments. That way, they would be captured in the national accounts and hence give a push to GDP. Do you agree?

Not necessarily. In the unorganised sector, you can’t distinguish between company accounts and personal accounts; they are mixed. If flows through the banking sector increase, how would national accounts capture which is which?

Many say that transactions such as jewellery, purchases will be shown back-dated, say, for the month of October. To the extent that these fall in the third quarter, it might show a rise in GDP, isn’t it?

It could be. However, it would not be very large. There are no estimates as of now but I suspect these would be small.

Former prime minister Manmohan Singh has said demonetisation would lead to a two percentage-point fall in GDP for 2016-17; probably an underestimation, he added. Do you agree?

I have projected it to be in the range of one to three percentage points. His projection is of that range.