India's GDP grew 0-1% due to "negative growth" in unorganized sector post-demonetization, GST: Economist
"If we consider the sharp decelerations of the unorganized sector of the economy as a result of demonetization and GST, India's actual growth rate is either zero or 1%", Dr Arun Kumar, currently Malcolm S Adiseshiah chair professor, Institute of Social Sciences, and previously professor of economics at the Jawaharlal Nehru University, New Delhi, said.
Author of the best seller 'The Black Economy in India', republished thrice, last time this year, and 'Demonetization and Black Economy’, to come out in November 2017, both published by Penguins, Dr Kumar said, "The unorganized sector virtually collapsed during the demonetization phase, November-December 2016. Consisting of 45% of the economy, it's GDP, according to my estimate, went down to minus (--) 22%."
Asked about the status of the GDP of the unorganized sector as of today, Dr Kumar told a media interaction in Ahmedabad, organized by the Gujarat Lok Samiti, "It hasn't yet recovered. It's growth rate remains in the negative even today. It would be around minus ( -- ) 4-5%."
Dr Kumar, who later delivered a lecture on black economy at the Indian Institute of Management, Ahmedabad, added, "We are actually passing through a deep recessionary phase."
Pointing out that the problem lies with the way the GDP is calculated, Dr Kumar said, "Even if the actual GDP rate was 5.7%, it would be quite a good performance. However, if one takes into account different sectors of the economy, we can see that something is fundamentally wrong with the way way one calculates GDP."
He explained, "There is no separate calculation for the unorganized sector, which consists of 45% of the economy. The GDP growth is calculated on the basis of the growth in the organized sector. Based on that, and taking into consideration the perception of other sectors, GDP is calculated. It is assumed that the unorganized sector would have grown at the same rate as the organized sector, which is totally flawed."
Coming to the GST, Dr Kumar said, all that it is doing -- apart from creating taxation problems for the small scale sector -- is to "fuel inflation". Pointing out that here too the problem is the way inflation is calculated, he underlined, "The service sector consists of 40% of GDP, yet it is not calculated in the inflationary push. It is the service sector which has been adversely affected the most by the GST."
According to Dr Kumar, "Taxes on the services sector have been successively rising, starting at 4%. Last they were 12%. GST on the service sector now is 18%, which is fuelling inflation, yet it is not being calculated. To say that the rate of inflation is 2.5%, as claimed by the officials, is an understatement. I think that the rate of inflation is at least 6%."
Noting that the joint impact of demonetization and GST has been especially felt on the jobs market, Dr Kumar said, "Officially, India's unemployment rate is 2.5%. However, in a country where to earn even a small amount is a compulsion, driven by poverty, underemployment is rampant. When you ask anyone whether he works, he will say he is working, however little the amount may be. According to my estimate, underemployment is about 18% of the able bodied population seeking job."
Pointing out that the problem lies with the way the GDP is calculated, Dr Kumar said, "Even if the actual GDP rate was 5.7%, it would be quite a good performance. However, if one takes into account different sectors of the economy, we can see that something is fundamentally wrong with the way way one calculates GDP."
He explained, "There is no separate calculation for the unorganized sector, which consists of 45% of the economy. The GDP growth is calculated on the basis of the growth in the organized sector. Based on that, and taking into consideration the perception of other sectors, GDP is calculated. It is assumed that the unorganized sector would have grown at the same rate as the organized sector, which is totally flawed."
Coming to the GST, Dr Kumar said, all that it is doing -- apart from creating taxation problems for the small scale sector -- is to "fuel inflation". Pointing out that here too the problem is the way inflation is calculated, he underlined, "The service sector consists of 40% of GDP, yet it is not calculated in the inflationary push. It is the service sector which has been adversely affected the most by the GST."
According to Dr Kumar, "Taxes on the services sector have been successively rising, starting at 4%. Last they were 12%. GST on the service sector now is 18%, which is fuelling inflation, yet it is not being calculated. To say that the rate of inflation is 2.5%, as claimed by the officials, is an understatement. I think that the rate of inflation is at least 6%."
Noting that the joint impact of demonetization and GST has been especially felt on the jobs market, Dr Kumar said, "Officially, India's unemployment rate is 2.5%. However, in a country where to earn even a small amount is a compulsion, driven by poverty, underemployment is rampant. When you ask anyone whether he works, he will say he is working, however little the amount may be. According to my estimate, underemployment is about 18% of the able bodied population seeking job."
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