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LATEST NEWS UPDATES | Consumption mystery could be traced to piling up of inventories -Aanchal Magazine

Consumption mystery could be traced to piling up of inventories -Aanchal Magazine

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published Published on Mar 2, 2017   modified Modified on Mar 2, 2017
-The Indian Express

As per the methodology, since no direct data of expenditure is used, most of the GDP data is calculated based on output data

The answer to the puzzling rise in Private Final Consumption Expenditure (PFCE) in the second advance estimate of GDP for 2016-17 despite the evident cash squeeze due to demonetisation may very well lie in the methodology used for calculating the new series of GDP. As per the methodology, since no direct data of expenditure is used, most of the GDP data is calculated based on output data, thereby resulting in a rise in inventories getting reflected in higher consumption expenditure.

Change in stocks, the term denoted for inventories in GDP calculations, is estimated to increase 17.2 per cent in 2016-17 to Rs 3,08,426 crore from Rs 2,63,071 crore last year, data released by the Central Statistics Office (CSO) showed. In the October-December quarter, however, change in stocks showed a decline of Rs 2,943 crore to Rs 73,070 crore. But, going ahead, as per the back-of-the-envelope calculations, the CSO expects inventories to rise in the January-March quarter, with change in stocks expected to rise to Rs 82,373 crore.

“There is no direct measure for expenditure side. Except for government expenditure and trade data, everything else is estimated based on production data. So, it’s possible that piling up of inventories is getting reflected as higher consumption and investment not being reflective of demand on ground,” former chief statistician of India Pronab Sen said.

CSO officials confirmed that inventories, especially food stocks, may get reflected as higher consumption expenditure. “There’s no direct data, we follow whatever is available from the production side. Commodity flow stock is recorded and we see the trend in consumption vis-a-vis production of previous years. The trend in consumption is then extrapolated to the year for which GDP data is being released. For example, for the food stocks, inventories are added to the commodity flow estimates. Total stock of food is derived for the year and then you use various ratios to arrive at quarterly data for final consumption,” an official involved in the exercise said.

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The Indian Express, 2 March, 2017, http://indianexpress.com/article/business/economy/consumption-mystery-could-be-traced-to-piling-up-of-inventories-gross-domestic-product-gdp-4550182/


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