Explaining Q3 high private consumption growth

Arvind Virmani, former CEA (2007–09) writes:

(1) Sales which had happened during April-October but had not been declared, brought on the books.
(2) Artificial Sales receipts created to show accumulated cash as earned income to be able to safely deposit in bank.

Evidence of (2) in entirely anecdotal at this point, so there is little to estimate really what/how much of this contributes to the growth bump. However, whether successful or not in ‘bypassing’ an Income Tax notice, the revenue is on the books and part of the formal economy now.

(3) Temporary shift of consumer demand from unorganized to organized (taxed) sector so as to able to use cheque she or digital payments based on bank saving , as unavailable.
(4) Temporary shift in production from cash strapped unorganized sector to organized/tax paying sector operating on cheque & formal credit

As Virmani himself mentions, both these factors repeating themselves will depend on how much of this shifts back to the ‘unorganized’ sector again as cash returns to the economy. While examples of this is still anecdotal as well, I expect a large number within the unorganized sector will choose to move into the organized framework, so the overall trend line will stay steady.

Additionally, the gains of demonetization starting to prop up growth via expanding the formal accounted economy is starting to show its weight in numbers.

Chirag Desai @Chirag