Growth slows to 6.1% in Q4 as note ban weighs on economy

India at risk of losing tag of fastest expanding major economy

NEW DELHI: India’s economic growth slowed for the fourth consecutive quarter in the three months ended March, mirroring the impact of demonetisation on key sectors including construction and financial services.

Gross domestic product (GDP) growth slowed to a pace of 6.1% in the fiscal fourth quarter, from 7.5% in the third, according to data released by the government on Wednesday.

The slowdown may put pressure on the RBI, whose monetary policy committee meets next week, to cut policy rates to balance its inflation-targeting focus with the need to stimulate economic growth.

Real gross value added (GVA), another measure of economic activity that is arrived at by excluding net indirect taxes from GDP, slowed to a growth pace of 5.6% in the March quarter, also the fourth consecutive quarterly decline.

The Central Statistics Office maintained its earlier full-year growth estimate for 2016-17 at 7.1% on top of revised 8% growth in the previous financial year.

The growth numbers reflected the lingering effects in the March quarter of demonetisation, which triggered a cash crunch and disrupted business, especially in the unorganised sector.

The labour-intensive construction sector contracted as a result of the cash shortage and regulatory changes, and financial services grew at an anaemic single-digit pace. The distinct downtrend in GDP growth over the four quarters of FY2017 suggests that the slowdown in growth that had already set in had been intensified by the note ban, said Aditi Nayar, principal economist at rating company ICRA.

“Demand and purchases during the festive season and a favourable base effect appear to have couched the impact of the note ban on consumption growth in Q3 FY2017, which was followed by a sharp dip in Q4 FY2017,” she added.

Fiscal fourth quarter growth in the $2.3 trillion Indian economy, the third largest in Asia, trailed the 6.9% pace at which China grew in January-March, putting it at the risk of losing its status as the world’s fastest expanding major economy.

India’s per capita income in real terms in 2016-17 also slowed to a growth pace of 5.7% to ₹82,296 ($1,276) against 6.8% growth last year.