India growth rate slips to 7 pct in 3Q after cash ban

NEW DELHI: India’s economic growth rate slipped to seven per cent in the third quarter of the financial year after the controversial ban on high-value banknotes in November, official figures showed.

Gross domestic product in one of the world’s fastest growing economies expanded 7.0 per cent year- on-year in the three months to the end of December, down from 7.3 per cent in the previous quarter, data published by the central statistics office showed.

While growth came in lower than the previous quarter, it exceeded most analyst predictions in the wake of the government’s shock move to remove all 500 (around US$ 7.50) and 1,000 rupee notes from circulation immediately. Prime Minister Narendra Modi has defended his so- called demonetisation scheme as a necessary strike against corruption and a way of boosting tax revenues by dissuading people from doing business in cash.

But the move triggered massive lines outside banks in the weeks afterwards as authorities struggled to print replacement notes fast enough.

Chief statistician T.C.A Anant said after the data was announced that it was difficult to assess the full impact of demonetisation, which the government had already acknowledged has hit growth.

“Policies like demonetisation are very difficult to assess without a lot of data,” Anant told a press conference.

“We will keep evaluating the numbers. I will not like to draw any conclusions at this stage.”

Anant said some sectors such as agriculture and mining had in fact performed better than expected in the third quarter.

“The only two sectors in which it is distinctly worse is finance and the real estate category,” he added.

The impact on the real estate sector was widely expected as experts say most transactions are either wholly or partly conducted in cash in a bid to avoid paying tax.

Analysts said the data was better than expected.

“It’s higher than our expectation. We were expecting 6.5 per cent and the actual growth at 7 per cent is a pleasant surprise,” Sunil Sinha, principal economist at India Ratings & Research, told AFP.

“But when I look at third quarter more carefully, half the quarter, including the festive season when spending is high, was gone by the time demonetisation kicked in,” he said in reference to the Diwali holiday.

“Wait and see what happens in the fourth quarter. That’ll be a better parameter to judge the impact of demonetisation.”

Ashutosh Datar, an economist at IIFL Institutional Equities, also cautioned that the full picture had yet to emerge.

“There will be a downward revision of this as more data comes in over the next few quarters,” he told AFP. — AFP