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Missing link: The informal sector

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Urjit Patel

[vc_row][vc_column][vc_column_text]Flawed methodology distorts CSO data about the economy

By Sindhu Bhattacharya

The Government would have us believe that demonetisation has had an almost negligible impact on India’s economic growth in the December quarter of this fiscal. Never mind that most economists have been flummoxed by the GDP data which the Central Statistics Office (CSO) released on Tuesday and whose authenticity many have subsequently questioned. Whether the CSO has been completely honest in gathering and extrapolating data is for the experts to decipher—Opposition parties like the Congress have already begun doubting the veracity of what CSO has laid on the table. But one point cannot be ignored—does the CSO use correct methodology to reflect actual ground realities of India’s economy or is the complete exclusion of our thriving informal economy in data projection the real culprit?

Two caveats: First, the numbers released on Tuesday are advance estimates and therefore an updated version will come in later where corrections will most likely be incorporated. Besides, some growth numbers for previous quarters have been revised downwards and this makes the data for Q3FY17 look rosy in comparison. Second, former Chief Statistician Pronob Sen and some other economists have pointed out that CSO doesn’t cook the numbers. Sen told The Indian Express, “The CSO has made no mistake. Its estimate is based on specific assumptions and it is not allowed to fiddle with these assumptions. For any change in methodology, it has to approach the Advisory Committee on National Accounts.”

Also read: Questioning CSO data is jumping the gun, say experts, wait for revision

Here’s what the CSO data showed: GDP growth at 7% in the December quarter versus 7.4% in the September quarter and 6.9% in the December quarter of the previous fiscal year. Growth in private final consumption accelerated to 10.1% in Q3FY17 versus 5.1% in Q2FY17; growth in manufacturing accelerated to 8.3% in the December quarter against 6.9% in the September quarter of FY17. If demonetisation severely impacted economic activity in India—a widely held perception based on anecdotal evidence—how could these numbers be correct?

But the CSO has been a butt of jokes since Tuesday for something it cannot control—its faulty methodology. Its data collection seems to ignore a very significant portion of India’s economy: the informal sector. According to the brokerage Ambit, the informal sector accounts for over 40% of India’s GDP and provides employment to over 75% of India’s labour force. In absolute terms this means that the informal economy generates GDP worth $907 billion and provides employment to 360 million of India’s total labour force of 480 million people.

“The quarterly estimates published by the CSO by definition are a result of an extrapolation exercise based on partial data… the numbers estimate growth in the informal economy using formal economy-related data,” Ambit had said in a note to clients earlier. It had further noted that the main source of CSO data for the informal sector is the NSSO, which publishes with a lag and captures data with a 2-5 year frequency!

Put simply, this means CSO methodology would anyway have shown the results it has indeed shown since it is not tracking the informal sector directly and using relatively old data. One wonders at the economists for then being surprised at the data – it should have been obvious that the pain of demonetisation, which was largely felt in the informal sector, would not get captured in its entirety by the government’s own statistical office.

Neelkanth Mishra, India equity strategist, Credit Suisse told the Indian Express in the same piece that “Almost 45 per cent of the GDP is informal. The CSO uses different proxies to estimate GDP. For instance, sales tax collections is taken as a proxy for the trade sector. Here, if states post robust sales tax growth, the trade sector growth will reflect it. The CSO doesn’t get influenced by anyone. Yes, we should discuss how quarterly GDP data can be arrived at to make it more useful.”

The question which the economists now need to ponder over is whether the formal sector wasn’t majorly impacted by demonetisation and if this is the case, why did the large companies escape India’s biggest economic disrupter since Independence?

According to Ambit’s note tracking 17 “high frequency” sectors and how they were impacted through demonetisation, 10 of these sectors showed negative growth in the December quarter versus the September quarter. The biggest drop was seen in passenger vehicle sales (29.6%) followed by two wheeler sales (18.7%). Non-oil bank credit fell 6% while retail credit was down 4.5%. Domestic tractor sales fell 7% while cement production was lower by 3%

Soumya Kanti Ghosh, the Chief Economist at the State Bank of India explained how the formal economy continued its growth despite demonetisation. SBI considered the latest quarterly results of listed entities with more than Rs 100 crore turnover; out of 946 listed entities about 720 entities were studied. Ghosh found these 720 entities had average cash sales (assuming 2% of net sales) of Rs 24.40 crore per entity, an increase from Rs 22.98 crore in Q2 FY17 per entity for 731 entities.

Also read: ‘Too early to celebrate’ India’s GDP beat: Former FM Chidambaram

Radhika Rao, an economist at Singapore’s DBS Bank, told CNBC sub-trends suggested the formal sector might have actually benefited from the banknote ban, with more transactions taking place through electronic means.

BJP MP Subramanian Swamy told CNBC though that many of the calculations for the informal sector were based on “guesswork,” “benchmarks” and “ratios” as opposed to raw data. “Therefore, I won’t place too much emphasis on it. The real issues are the slowdown in small-and-medium industries because of the cash crunch,” Swamy said.

The bottomline is, in the absence of data capturing of the small and medium enterprises and the huge parallel economy which thrives in India, CSO’s quarterly exercise lacks meaning. And the data it puts out needs to be checked and cross checked before being accepted. No Prime Minister, this is not a case of Harvard versus hard work, it is more a case of closing one’s eyes to reality. Unless the informal sector gets its fair share in official data capturing, discrepancies will remain.[/vc_column_text][/vc_column][/vc_row]

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Vistara and Air India airlines to merge by March 2024

The latest notification states that SIA is also investing Rs 20,585 million in Air India as part of the transaction.

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Vistara and Air India airlines to merge

Tata Sons and Singapore Airlines (SIA) have agreed to merge Air India and Vistara airlines by March 2024. The latest notification states that SIA is also investing Rs 20,585 million in Air India as part of the transaction, giving SIA a 25.1 percent stake in the Air India group.

Currently, Tata Group holds 51 percent of the shares in Vistara, and Singapore Airlines has the remaining 49 percent. According to the release, SIA and Tata have also agreed to take part in future capital investments that may be necessary to finance the expansion and operations of the larger Air India in the fiscal years 2022–2023 and 2023–2024.

Tata Sons chairman N Chandrasekaran said that the merger of Vistara and Air India is an important milestone in their journey to make Air India a truly world-class airline. He said they are transforming Air India, with the aim of providing a great customer experience, every time, for every customer.

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He further said that as part of the transformation, Air India is focusing on growing both its network and fleet, revamping its customer proposition, and enhancing safety, reliability, and on-time performance. He stated that both Tata Sons and Singapore Airlines are excited about the opportunity of creating a strong Air India which would offer both full-service and low-cost services across domestic and international routes. He also thanked Singapore Airlines for their continued partnership.

SAI chief executive officer Goh Choon Phong said the merger provides an opportunity to deepen the company’s relationship with Tata and participate directly in an exciting new growth phase in India’s aviation market.

SAI chief executive officer Goh Choon Phong said Tata Sons is one of the most established and respected names in India. SIA’s collaboration to set up Vistara in 2013 resulted in a market-leading full-service carrier, which has won many global accolades in a short time. He said with this merger, SIA has an opportunity to deepen its relationship with Tata and participate directly in an exciting new growth phase in India’s aviation market. He further said that they will work together to support Air India’s transformation programme, unlock its significant potential, and restore it to its position as a leading airline on the global stage.

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Nykaa CFO Arvind Agarwal resigns

Arvind Agarwal earlier worked with Amazon and joined Nykaa in July 2020.

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Arvind Agarwal

Nykaa chief financial officer Arvind Agarwal resigned from his position on Tuesday. The fashion and beauty e-commerce platform announced his resignation.

In a BSE filing, Nykaa informed that Agarwal will be leaving the Company, effective close of business hours on November 25, 2022, to pursue other opportunities in the digital economy and start-up space.

Nykaa’s founder Falguni Nayar hailed Agarwal for the crucial role he played in the company’s emergence as a listed and profitable start-up. Nayar said the company is conscious of Agarwal’s personal dreams and wishes him all the luck.

Upon his resignation, Agarwal said his journey in Nykaa has been incredible so far and all his learning and experiences have set them up for pursuing different personal growth opportunities in the field. He further wished Nykaa good luck for the growth path ahead.

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Arvind Agarwal earlier worked with Amazon and joined Nykaa in July 2020. He was among the key managerial personnel and handled the initial public offer of the firm. Before Amazon, Agarwal worked with Vodafone India for more than 5 years. He had also worked with YOU Telecom, Adani Port, and Tata Teleservices.

Reports said Agarwal paid a total remuneration of Rs 19.58 million during the financial year 2021.

Apart from Nykaa, food delivery application Zomato also saw the resignation of its co-founder Mohit Gupta after 5 years of association with the company.

Gupta, in a message, stated that he decided to move on from Zomato to seek other unknown adventures. He also hailed Deepinder Goyal as he has become a more mature and confident leader who is capable of leading the business into a bright future.

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Jeff Bezos warns of recession, advises people to refrain from buying TV, fridge, cars during holiday season

The former CEO of Amazon also advised small business owners to put off purchasing new equipment in favour of increasing their cash reserves.

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Jeff Bezos warns of recession, advises people to refrain from buying TV, fridge, cars during holiday season

In light of the possibility of a global recession, Amazon founder Jeff Bezos advised consumers to refrain from making significant purchases during the holiday season. Given the state of the economy, he urged people to keep their money safe and refrain from irrational spending in the upcoming months.

The business tycoon said American families should avoid purchasing big-ticket items such as new cars, TVs, automobiles, and refrigerators as the US is staring at a recession. He said American household debt has reached a record high of $16.5 trillion, and people are switching to credit to get their ends meet.

The former CEO of Amazon also advised small business owners to put off purchasing new equipment in favour of increasing their cash reserves.

Bezos said Take some risk off the table, adding, Keep some dry powder on hand. Just a little bit of risk reduction could make the difference for that small business if we do get into even more serious economic problems. You’ve got to play the probabilities a little bit.

He said things are slowing down and many sectors of the economy are seeing layoffs, and this is why you should hold onto your money.

Meanwhile, the founder of Amazon stated in the same interview that he will contribute the majority of his $124 billion income to charitable organizations in order to combat climate change and to help those who can bring mankind together in the face of escalating social and political conflicts.

Bezos did not say how much of his money he intended to donate. But he said, Yeah, I do, in response to the question of whether he will donate a significant percentage of his wealth to charity.

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