Harvard economists face Modi's censure on India GDP surprise

[BENGALURU] It's not the economy, stupid.

Prime Minister Narendra Modi took a dig at critics of his cash ban after government data showed surprisingly strong growth that helped India retain its position as the world's fastest-growing big economy.

"Well known intellectuals from Harvard and Oxford, who have been at key positions in the Indian economic system, had said the GDP would go down by 2 per cent, some others said it would go down by 4 per cent," Mr Modi said at a campaign speech Wednesday in the key electoral state of Uttar Pradesh, without naming anyone.

"On one hand, there are these intellectuals who talk about Harvard, and on the other, there is this son of a poor mother, who is trying to change the economy of the country through hard work."

"In fact, hard work is much more powerful than Harvard," he said.

Gross domestic product data has become the focus of divisive debate in India, as Mr Modi's critics and supporters tussle over the impact of his unprecedented cash ban announced in November.

At stake is the credibility of the nation's outlook to foreign investors, who may choose to eschew a stock-market rally.

GDP grew 7 per cent in October-December, data showed Tuesday, a slight slowing from the previous year's 7.3 per cent but far stronger than the median 6.1 per cent estimate in a Bloomberg survey of economists.

While this early data doesn't capture the note ban's impact on small companies and unorganised workers - a fact the finance ministry's advisers acknowledged last month - policy makers and analysts had predicted a slump followed by a sharp recovery.

The government's top statistician on Thursday said the entire data set will be available only next year and economists including at HSBC Holdings Plc expect the numbers will be revised as clarity emerges. The data runs counter to underlying indicators such as factory output and credit growth.

"This does not add up," Sonal Varma, an economist at Nomura Holdings Inc, wrote in a report after the data was published.

"Is India becoming another China, with incredible growth momentum and statistics nobody quite believes?" Bloomberg View columnist Mihir Sharma wrote on Thursday.

Among critics of demonetisation are Nobel Prize winner Amartya Sen, a Harvard professor, and former Finance Minister Palaniappan Chidambaram, who was educated at Harvard, and Mr Modi's predecessor Manmohan Singh, who read economics at Oxford.

Mr Singh had told lawmakers the cash ban could strip as much as 2 percentage points off GDP.

"The prime minister making a sarcastic dig at an election rally has revealed his political desperation," said Sanjay Jha, a spokesman of the main opposition Congress party.

"These are estimates that are bound to see a downward revision, because in reality they have not factored in the impact on the informal sector, which was most affected by the demonetisation. The number deserves further public scrutiny." Jagdish Thakkar, a spokesman in the Prime Minister's Office, didn't answer calls.

"As soon as the data was published and their lies were exposed, they have started saying that the data is incorrect, questioning 'where has Modi brought these numbers from?'," Mr Modi said at another rally in Uttar Pradesh on Wednesday.

"The numbers come from the same place they always were coming from. We are using the same statistics that the country has used since the past 10 years," he added.

India changed its method of calculating GDP in 2015, a year after Mr Modi took office, and several economists have questioned it ever since.

"Those who are being projected as Harvard and Oxford supporters are those who have been very strongly critical of various policies the government adopted, including demonetisation," said Sandeep Shastri, pro-vice chancellor at Jain University in Bengaluru.

"The prime minister stands to project himself as representing a line of thinking which challenges what could be called the mainstream or elite way of looking at issues" and divergence between the extremes is only set to increase, he said.

BLOOMBERG