Skip to main content

Noteban: Harvard, Goldman Sachs scholars bemoan lack of "authentic" growth data

By Rajiv Shah
In a sharp observation, scholars of a recent high-profile study, "Cash and the Economy: Evidence from India's Demonetization", whose results have been widely reported, have bemoaned: That there is lack of authentic official data on Gross Domestic Product (GDP) with the Government of India, forcing them to use “nightlights data”, a methodology usually adopted by top international scholars to assess socio-economic growth in highly underdeveloped countries of East Africa and parts of Asia, where no authentic ground level surveys are available to assess development.
Under this methodology, statisticians the world over use satellite images of earth’s nightlights to measure social and economic activity and provide data that can help determine socioeconomic indicators when no other reliable information exists where economic accounting systems are weak, or when satellite images are more frequently available than such data.
Says an Asia Development Bank (ADB) expert, Arturo Martinez, Jr, who has used this method, "The data are more than just satellite images of earth; researchers use these images to derive proxy measures of various official statistics. The presumption is that most social and economic activities at night require light; hence the intensity of nighttime lights and the area they cover should correlate with socioeconomic indicators and economic development."
Using this method as an important measure to assess demonetization (losely referred to as noteban), scholars with well-known institutes – Gabriel Chodorow-Reich (Harvard), Gita Gopinath (Harvard), Prachi Mishra (Goldman Sachs), and Abhinav Narayanan (Reserve Bank of India) – in their study on demonetisation, find that the nightlights-based estimates suggest a “contraction” of output due to demonetization of 2 percentage points “in 2016Q4.”
Insisting that “demonetization had an adverse effect on real economic activity”, the study, published as a National Bureau of Economic Research (NBER) Working Paper No 25370 (December 2018), says, the results show “economically sharp, statistically highly significant contractions in areas (districts) experiencing more severe demonetization shocks”, adding, “The effects on real economic activity peak in the period immediately following the announcement (November 8, 2016) and dissipate over the next few months as new currency arrives.”
The scholars observe “a decline in nightlights-based economic activity and of employment of 3 percentage points or more in November and December of 2016”, which translates into “a decline in the quarterly growth rate of 2 percentage points or more”.
Pointing towards the reason why they adopted the nightlight activity to “measure of real activity following demonetization”, the scholars say, “Nightlight intensity refers to low-light imaging data collected by satellite and filtered to measure the quantity of artificial (i.e. human-generated) light in an area. Such data have been used to augment official measures of output and output growth and to generate estimates for areas or periods where official data are unavailable.”
Noting that nightlights activity suggest that “demonetization reduced real economic activity”, the scholars say, the areas with “larger declines in currency experienced sharper declines in employment and in nightlight activity after demonetization occurred”. They add, “The magnitude of the effect on real activity is substantial.”
Answering the question as to why does the “decline” does not reflect in the “national GDP data”, the scholars say, “National data are volatile and subject to other shocks, making it difficult to discern a single break point around demonetization”, adding, “Our measures of real activity have the advantage over official GDP of directly incorporating informal sector activity.”
This is particularly important, say the scholars, as “the informal sector in India is estimated to account for 81% of total employment (ILO, 2018) and 44% of total output and is especially cash-intensive. While the level of official GDP includes an estimate of informal sector activity derived from a quinquennial household survey, quarterly changes in GDP do not reflect any direct measurement of informal sector activity.”
The scholars note, “Our results also point to the likelihood of an absolute decline in economic activity at the end of 2016 not captured in official statistics”, underlining, “While the cashless limit may appropriately describe economies with well developed financial markets, in modern India cash continues to serve an essential role in facilitating economic activity.”
The scholars conclude, “There may be longer term advantages from demonetization that arise from improvements in tax collections and in a shift to savings in financial instruments and non-cash payment mechanisms. Evaluating these long-term consequences requires waiting for more data and an empirical strategy suited to the study of longer term effects.”

Comments

TRENDING

World Bank clarifies: Its 26th rank to India not for universal access to power but for ease of doing business

By Our Representative
In a major embarrassment to the Government of India, the World Bank has reportedly clarified that it has not ranked India 26th out of 130 countries for providing power to its population. The top international banker’s clarification comes following Union Power Minister Piyush Goyal’s claim that India has “improved to 26 position from 99” in access to electricity in just one year.

"Misleading" satellite images being shared on Balakot surgical strike on Jaish camp

By Dr Vinay Kate*
With every passing day more questions are being raised about the surgical strike India did in Balakot as a response to Pulwama attacks. So far the Indian media has claimed mass casulaty of 300+ terrorists of Jaish-e-Mohammad in this surgical strike, but there is hardly any report from foreign media about the same.

Extreme repression, corporate loot, cultural genocide "characterise" India's tribal belt

Counterview Desk
As Lok Sabha polls approach, there is considerable ferment in one section of the population -- India's Adivasis, forming about 8.6 per cent of India's population. Things became particularly critical following the February 14, 2019 Supreme Court order, allegedly seeking to evict lakhs of tribals from their forest lands.

Industry in India "barely growing", export growth 0%, whither moral anchors?

Counterview Desk
In a sharp critique of the Modi government, the Indian Institute of Management-Ahmedabad (IIM-A), one of world renowned economist Prof Kaushik Basu, who is Professor of Economics and Carl Marks Professor of International Studies at Cornell University, has told students at the IIM-A’s 54th Annual Convocation on March 16, 2019 that they have a “special responsibility” on their shoulders, “the responsibility to reject narrow sectarianism, uphold scientific thinking, openness to new ideas, and freedom of speech.”

Congress would win just 9 of 26 Lok Sabha seats: Gujarat Assembly segment-wise analysis

By Rajiv Shah
Even as the Congress plans its first working committee meet in Gujarat on February 28 after an almost 58 year gap, there is reason to wonder what is in store for India’s grand old party in a state which has been long been a BJP bastion – in fact ever since mid-1990s. Ahead of the then assembly polls in late 2012, talking with me, a senior Gujarat Congress leader, currently Rajya Sabha MP, frankly said he saw no reason why Congress would win.

Financial inclusion? Not micro-loans; India's poor "need" investment in health, education

By Moin Qazi*
India has grown into a global powerhouse. Its economy is soaring but the picture on the ground is still quite arid. The green shoots that you see are only a patch of its landscape. Most Indians are hapless victims of inequity. India is one country where intense poverty abounds in the shadow of immense wealth.

"Pro-corporate" Supreme Court order on FRA would further marginalize Adivasis

By VS Roy David, JP Raju*
For millions of Adivasis and other traditional forest dwellers February 13, 2019 will go down in history as the day of apocalypse. This is like the proverbial Black Friday where millions of most marginalized people of India were ordered by malicious anti-people draconian Supreme Court order depriving them the life and livelihood by evicting them from their habitats.

India, Pakistan told to eliminate nuclear weapons: N-war "would kill" 2 billion

Counterview Desk
The International Physicians for the Prevention of Nuclear War (IPPNW), a non-partisan federation of national medical organizations in 64 countries, representing tens of thousands of doctors, medical students, other health workers, and concerned citizens, claiming to share the common goal of creating a more peaceful and secure world freed from the threat of nuclear annihilation, has warned that “an unprecedented global catastrophe” awaits the globe against the backdrop of warmongering in India and Pakistan.

Modi wants Pak govt be held responsible for JeM terror strike: World doesn't agree

By Sandeep Pandey*
I went to participate in a candle light homage paying event at Dr BR Ambedkar's statue organised by about 200 Dalit students on Hazratganj main crossing in Lucknow on February 16, 2019 evening, two days after the dastardly terrorist act in Pulwana, Jammu and Kashmir (J&K), in which 44 Central Reserve Police Force (CRPF) personnel was killed.

Women, business, law: India scores worst among all BRICS, several African nations

By Rajiv Shah
A new World Bank report ranks India 125th in its Women, Business and the Law (WBL) index among 187 economies it seeks to analyse across the globe. The report's main aim claims to be to "gain new insight into how women’s employment and entrepreneurship choices are affected by legal gender discrimination. On a scale of 100, India's score is 71.25, worse than the global average of 74.71.