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

Buddhist shrines massively destroyed by Brahmanical rulers in "pre-Islamic" era: Historian DN Jha's survey

By Our Representative
Prominent historian DN Jha, an expert in India's ancient and medieval past, in his new book, "Against the Grain: Notes on Identity, Intolerance and History", in a sharp critique of "Hindutva ideologues", who look at the ancient period of Indian history as "a golden age marked by social harmony, devoid of any religious violence", has said, "Demolition and desecration of rival religious establishments, and the appropriation of their idols, was not uncommon in India before the advent of Islam".

RSS' 25,000 Shishu Mandirs 'follow' factory school model of Christian missionaries

By Bhabani Shankar Nayak*
The executive committee of the International Union of Anthropological and Ethnological Sciences (IUAES) recently decided to drop the KISS University in Odisha as the co-host of the World Anthropology Congress-2023. The decision is driven by the argument that KISS University is a factory school.

India must recognise: 4,085 km Himalayan borders are with Tibet, not China

By Tenzin Tsundue, Sandeep Pandey*
There has as been a cancerous wound around India’s Himalayan neck ever since India's humiliating defeat during the Chinese invasion of India in 1962. The recent Galwan Valley massacre has only added salt to the wound. It has come to this because, when China invaded the neighbouring country Tibet in 1950, India was in high romance with the newly-established communist regime under Mao Zedong after a bloody revolution.

Swami Vivekananda's views on caste and sexuality were 'painfully' regressive

By Bhaskar Sur*
Swami Vivekananda now belongs more to the modern Hindu mythology than reality. It makes a daunting job to discover the real human being who knew unemployment, humiliation of losing a teaching job for 'incompetence', longed in vain for the bliss of a happy conjugal life only to suffer the consequent frustration.

Gujarat literati flutter: State Akademi autonomy curb a Sahitya Parishad poll issue?

By Dankesh Oza*
The 115-year-old Gujarati Sahitya Parishad is in election mode. More than 3,000 life members of the Parishad are set to elect its 52nd president and 40 plus central working committee (CWC) members, which in turn will elect its executive and two vice presidents, six secretaries and a treasurer for the coming three years (from 2021 to 2023).

Time to give Covid burial, not suspend, World Bank's 'flawed' Doing Business ranking

By Maju Varghese*
On August 27, the World Bank came out with a statement suspending the Doing Business Report. The statement said that a number of irregularities have been reported regarding changes to the data in the Doing Business 2018 and Doing Business 2020 reports, published in October 2017 and 2019. The changes in the data were inconsistent with the Doing Business methodology.

Delhi riots: Cops summoning, grilling, intimidating young to give 'false' evidence

Counterview Desk
More than 440 concerned citizens have supported the statement issued by well-known bureaucrat-turned-human rights activist Harsh Mander ‘We will not be silenced’ which said that the communal riots in Delhi in February 2020 have not been caused by any conspiracy, as alleged by the Delhi Police, but by “hate speech and provocative statements made by a number of political leaders of the ruling party.”

WHO chief ignores India, cites Pak as one of 7 top examples in fight against Covid-19

By Our Representative
In a move that would cause consternation in India’s top policy makers in the Modi government, Dr Tedros Adhanom Ghebreyesus, World Health Organization (WHO) director-general, has singled out Pakistan among seven countries that have set “examples” in investing in a healthier and safer future in order to fight the Covid-19 pandemic.

Agricultural reform? Small farmers will be more vulnerable, corporates to 'fix' price

By Dibyendu Chaudhuri*
Agriculture employs 42% of the total work force whereas it contributes only 16% to the country’s GDP. The average annual growth rate in agriculture has remained static to 2.9% since the last six years. This means that the post-green revolution conventional agriculture has reached its peak. Responsiveness of soil fertility to fertiliser application, an indicator of stagnancy in agriculture, shows declining trend since 1970. The worst sufferer has been the small and marginal farmers who constitute 86% of total farmers.