A growth spurt in agriculture, manufacturing and mining helped India ward off the impact of demonetisation with the government estimating fiscal third quarter GDP expansion at a healthy 7%, contrary to the predictions of reputed economists and analysts, most of whom had expected that the country’s economy would be badly hit in October-December due to the surprise move to ban high-value currency notes, which sucked out 86% of cash in circulation.
The CSO (Central Statistics Office) on Tuesday pegged fiscal third quarter agriculture sector growth at 6%, quickening from 3.8% in the previous quarter. It further said that the mining sector output grew at an impressive 7.5% in October-December, against a 1.3% fall in the preceding quarter. Similarly, manufacturing sector output also grew faster during the quarter at 8.3% in comparison to 6.9% a quarter ago.
CSO data surprised everyone, projecting India’s full fiscal year growth at 7.1% in its revised advance estimates for the current financial year 2016-17, helping the country retain the tag of the fastest growing major economy, ahead of China. The FY17 growth forecast still marks a slump against the 7.9% growth in the last financial year 2015-16.
Economic Affairs Secretary Shaktikanta Das sought vindication in the numbers, saying that the figures negate all the speculation about impact of demonetisation. Agriculture, manufacturing and mining, which are the substantive sectors in any economy, have shown a healthy and satisfying growth, he said.
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Further, this year’s growth figures are on a high base of last fiscal and numbers do not show much negative impact of demonetisation, Das said, adding that the process of remonetisation has progressed well.
However, some predict that the impact of demonetisation could show in the economy with a lag – a concern that even the government’s chief statistician TCA Anant did not explicitly alleviate while releasing the encouraging figures. There will certainly be more numbers coming in the future and the government would revise its estimate further in January next year, he said.
Earlier on January 6, the CSO had released its first advance estimate of India’s GDP for the current fiscal at 7.1%, but had not taken into account the slowdown seen in November citing high volatility in the figures.
A number of think-tanks and experts have cut their projections for 2016-17 to even below 7.1% estimated by CSO in January, but most have predicted a healthy recovery in the next two financial years.
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The Reserve Bank of India cut its GDP growth forecast for this fiscal to 6.9%, but at the same time, projected a rebound in the next fiscal at 7.4%. Earlier this month, the International Monetary Fund in its annual report on India had forecast that the GDP growth will slow to 6.6% in 2016-17 due to “temporary disruptions” caused by demonetisation, but also said it will bounce back to its expected growth of more than 8% in the next few years.
However, amid all the optimism, there might be a slight cause for concern. Earlier last month, Chief Economic Adviser Arvind Subramanian said the official GDP figures may not fully reflect the “real and significant hardships” experienced by the informal sector, which employs about nine out of 10 workers in India.