How Readers Were Misled About Demonetisation, GST Impact On Small Businesses

A friend of mine referred to a tweet by M K Venu (MKV) that linked to a news report in the Indian Express and asked if any of us had seen the RBI (Reserve Bank of India) study that the tweet referred to (i.e., referred to in that article).

Last night, on returning home, I decided to investigate since the magnitudes mentioned were substantial: 57.6 per cent (as per the Indian Express article) drop in sales by small companies (with sales of Rs 25 crore or less) in the fourth quarter of fiscal year 2016-17 (January-March 2017). Since that quarter followed the announcement of demonetisation on 8 November, it was rather too easy to attribute it to demonetisation.

On investigation, this is what I found:

Again, the news story that MKV had tweeted is this.

This is the headline for the article:

Small firms flounder post demonetisation, on GST: RBI study

The first para of the article gives the lie away:

The RBI data covers the period only up to March 2017. How can it include the impact of GST (goods and services tax) already?

Subsequent paragraphs state that the GST impact is mentioned in a study by Care Ratings:

What the article does not tell you – rather cleverly (or, so they thought) – is that firms with sales of Rs 25 crore or less had sales growth of -46.9 per cent in the third quarter of 2016-17 (the quarter that included demonetisation) and -48.6 per cent in the final quarter of 2015-16 when there was no demonetisation (nor GST, of course).

It has been a problem well before demonetisation happened. It reflects weak export demand, weak economy, etc, but not demonetisation.

Further, the article conveniently inflates the drop in fourth quarter 2016-17 sales to -57.6 per cent when the RBI table reports a figure of -51.6 per cent, which is not drastically different from the contraction in the previous quarter and in the same quarter of the previous year.

The RBI spreadsheets can be accessed here.

The assumption that people will not do their homework and will simply quote each other in a self-reinforcing cycle drives much of the press coverage of the government’s policies and actions.

What is amusing is that most commentators still discuss and tweet them as though they were truths because either they have no time to verify statements or that they believe naively that the journalists would have done their homework, or that they too want to believe that that is the truth.

Amusing, troubling and, maybe, disgusting too?

This is instructive (and yet another) reminder on how not to tweet or blog or form judgements based on stories in the Indian media on this government just as one is sceptical of government’s claims on some of their achievements.

Where possible, we should go to the source data ourselves or make our comments with caveats about the reliability of the report being unverified yet.

This piece was first published on the writer’s blog, The Gold Standard, and has been republished here with permission.