The Hardy Challenge of Tracking Economic Activity in a Pandemic

Context: India needs a database of small enterprises to help watch commercial trends that could hold a key to the economy’s revival

Major issues concerning Indian Economy:

• Output decline: The growth decline of 23.9 % in the first quarter (Q1) of the current fiscal year

• Elevated inflation: Headline inflation above the upper tolerance level of 6% since December 2019 (barring March when it dipped a little below)

• Small enterprises: Lack of database on small enterprises in India 

• This results in spoiling  excellent initiatives like the ?3 trillion provision for bank loan enhancements to small enterprises
• Ideally the data should be in our hand by now from the field work conducted during 2019 for the 7th Economic Census.

• Lack of estimates on district domestic product: 

• 13th Finance Commission provided a grant to develop business registers for each district as a basis for estimates of district domestic product

• 7th Economic Census says only a few states were able to assemble some kind of a database

• Resistance to field survey done for the economic census by small-industry respondents 

• This is due to reluctance to reveal source of credit and turnover, as enterprises try to duck registration under the GST
• This information difficulty can be overcome by interviewing local government officials in small towns and large villages.

Use data from e-way bills for provisional estimates of Gross Domestic Product (GDP): Reasons being - 

• More reliable: It is more reliable than figures based on agricultural output and monthly figures on government expenditure, the index of industrial production, and aggregate bank credit.

• Good coverage:  

• It is mandated for each consignment exceeding ?50,000 in value. 

• It covers both inter-state and intra-state transport.
• It covers  two important tax domain of states: alcohol for human consumption, and petroleum since they are carried by surface transport.
• It will be a good indicator of where economic recovery stands, preferable to the Purchasing Managers Index (PMI), which is much weaker in spatial coverage.

Some data related to e-way bills

• Volume of e-way bills: Since October 2018, the total volume of e -way bills never dipped below 50 million, until Q1 this year when it dipped to 26 million.

• In July 2020, it had risen to 48.4 million, and in August further to 49.4 million

• No jaggedness in interstate share of total volume:  remained consistently at 40%.

Conclusion: E-way bills should be taken on board while calculating provisional estimates of gross domestic product (GDP) as it is highly reliable monthly indicator.