GDP grows 7% in Q3 despite demonetisation
WORD OF CAUTION It is difficult to assess full impact of note ban: TCA Anant
India’s economy grew at a faster-than-expected pace of 7% in fiscal third quarter despite the invalidation of high-value banknotes in November.
Data released by the Central Statistics Office showed that the rate of growth in the three months ended December slowed slightly from 7.4% in the preceding quarter.
Gross domestic product (GDP) had been expected to grow 6.1% in the quarter, according to the median of estimates by five economists polled by Mint.
The Central Statistics Office stuck to its last month’s projection that the economy will grow at 7.1% in the year to March, slowing from 7.6% in the previous financial year.
The advance estimate of GDP growth was released a month before it is due to help the government prepare the budget, whose presentation was advanced by a month to 1 February.
The currency crunch that followed the demonetisation of high-value notes was widely believed to have hit consumption, as well as jobs in the informal sector, driving down economic growth.
The International Monetary Fund (IMF), in a report released last week, said India’s economic growth is expected to slow to about 6% in the second half (October-March) of 2016-17, before gradually rebounding in the course of 2017-18.
In the first half (April-September) of 2016-17, the economy grew 7.2%.
In its update to the World Economic Outlook (WEO) released in October, IMF said India is likely to grow 6.6% in 2016-17, against its earlier estimate of 7.6%.
Prime Minister Narendra Modi on November 8 invalidated ₹500 and ₹1,000 currency notes, which made up 86% of the currency in circulation by value, as part of his government’s fight against black money.
However, sounding a note of caution, chief statistician TCA 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 percent and the actual growth at 7 percent is a pleasant surprise,” said Sunil Sinha, principal economist at India Ratings & Research.
“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 added.
WITH AGENCY INPUTS