Prime Minister Narendra Modi’s management will likely need to prepare India’s $300 billion budget in the dark.
With less than a month to go before the annual demonstration, his Statistics Office has refused to estimate the effect of Modi’s unprecedented cash clampdown on gross domestic product. Was that growth will slow to a three-year-low before the effects of the ban start to show.
"In the event, the budget has to be tabled by Feb. 1, the newspapers will have to go for printing by Jan. 20. The Statistics Office left the Finance Ministry to fill in the blanks, and accurately used available data to offer an approximation of what the market would look like without demonetization, he said. "How much they'll shave off, no one can estimate."
Sen estimates GDP will expand about 6 percent in the entire year through March 2017, compared with a median 6.8 percent projection in a Bloomberg survey.
The government has sufficient data to organise the budget, Finance Ministry spokesman D.S. Malik said by telephone on Sunday, without elaborating.
There have been just a handful of indicators offered to the Statistics Office that capture the market after Modi’s Nov. 8 decision to invalidate 86 percent of currency in circulation, such as farm output and sowing, government expenditure and sales tax. Corporate results won’t be filed before early February, said Dharmakirti Joshi, chief economist at Crisil Ltd., the local unit of S&P Global. The authorities will be handicapped in estimating retrieval timelines for various sectors, he added, complicating an already fraught budget-making process.
A credible perspective on growth is necessary for the government to project spending and sales in a state where the workforce is entered by a million people each month. The 2017 statement is of particular value because it’ll be followed by a run of state elections that are crucial.
To further muddy the waters, Modi’s move will be believed in India’s vast shadow economy, which relies on cash and employs more than 90 percent of India’s workers.
‘Never Know How This Will Turn Out’
These effects won’t be directly captured in the GDP data, based on Gita Gopinath, the economics professor at Harvard University. Human anguish in the sort of job losses risks flying underneath the radar, or showing up indirectly as an antiseptic dip in eating as daily wage earners defer nonessential spending.
Modi had touted the move as India’s biggest measure against graft and tax evasion. While it is decried by critics as shortsighted, supporters praise Modi for his boldness.
"There has been no precedence of something in this way. You never understand how this will turn out."
Higher Tax Revenues
Tax collections in the entire year through March will surpass the authorities' approximations to declare unaccounted incomes, Finance Minister Arun Jaitley told reporters on Thursday in New Delhi. Windfall gains in the exercise will probably be between zero to 1 percent of GDP, based on Standard Chartered Plc. It forecasts the government will retain its target of narrowing Asia’s widest budget deficit to 3 percent of GDP in the year beginning April 1 though a deviation to 3.3 percent can’t be ruled out.
Apart from "forecasting challenges," the authorities will also probably overhaul the format of its budget, removing a historical difference between so-called plan and non-strategy spending which was a relic of Soviet-style five-year plans, Standard Chartered analysts including Anubhuti Sahay wrote in a report on Friday.
"The finance minister will face new -- and probably more important -- challenges than in recent years when he presents the budget," they said. "Don’t miss the forest for the trees."