Growth slows to 6.1% in Q4 on note ban impact
Slowdown in construction a key factor affecting the economy
India’s economy slowed down to 6.1% in the fourth quarter (January-March) of 2016-17 from 7% in the previous quarter (October-December) as the construction sector contracted as a result of demonetisation and regulatory changes, while financial services sector grew at a dismal single-digit pace.
The Central Statistics Office, however, maintained its earlier full year growth estimate for 2016-17 at 7.1% against 8% in the previous financial year.
During the March quarter, construction sector shrank 3.7% against 3.4% growth in the previous quarter. The withdrawal of high-value currency notes by the government in November was expected to have hit the sector. Announcement of a real estate regulator may have also contributed to the slowdown in the construction sector.
In the fourth quarter, mining picked up to grow at 6.4%, while public expenditure grew at 17%. Agriculture output growth slowed down but stayed robust at 5.2% and financial services sector grew at a paltry 2.2%.
Both gross fixed capital formation and private consumption as a percentage of GDP slowed down to 28.5% and 57.3% respectively in the fourth quarter when compared to the third quarter.
The latest data incorporates the new Wholesale Price Index (WPI) and Index of Industrial Production (IIP) series, both with a base of 2011-12, that were released earlier this month to replace the prevailing 2004-05 series. The base year for these new series is same as that of the GDP data, which is expected to improve the accuracy of the latter.
Credit rating agency Moody’s Investors Service earlier on Wednesday projected India’s economy to accelerate to grow at 7.5% in 2017-18 and 7.7% in 2018-19 as, it said, the government has been able to limit the negative impact of last year’s demonetisation on the economy.
The World Bank also expects Indian economy to grow at 7.2% in FY18 and gradually gather pace to touch 7.7% by FY 20, which is a year later than Moody’s projection.