The Indian economy slowed down to 7.1 per cent in 2016-17 due to the effect of demonetisation and lost the tag of world’s fastest growing major economy tag to China. However, experts feel that it will not be carried over in FY18 as there are signs of a rebound in various sectors. Vaibhav Agrawal, head of research, Angel Broking said,”The GDP estimates clearly shows the impact of the demonetisation. While numbers are subdued we believe that this was expected after demonetisation. We do not expect demonetisation impact to spill over in FY18 as multiple sectors are showing signs of recovery as well as a positive thrust from the normal monsoon.”
The data released by the Central Statistics Office (CSO) on Wednesday revealed that on the back of demonetisation impact, country’s economic growth slowed 3-year-low of to 7.1 per cent in 2016-17. The gross domestic product (GDP) growth for the January-March quarter slowed to 6.1 per GDP growth stood at a three-year low of 7.1 per cent.
The figures that showed economy slowing down to three-year-low comes at a time when the Narendra Modi government is celebrating three years of its being in power. India Inc after the GDP figures has made a pitch for a rate cut by the Reserve Bank of India (RBI) as its monetary policy committee (MPC) meets next week.
The government has announced the decision to demonetise high denomination currency notes on November 8 last year.
Some experts, however, believe that the slowdown in the economy was already visible before demonetisation and expect the consumption to drive the growth story further. Upasna Bhardwaj, Sr. Economist at Kotak Mahindra Bank said, “The sharp slowdown in Q4FY16-17 continues to reiterate the fact that demonetization has taken a toll on FY17 growth, and this conforms with the already tepid high frequency data. While the slowdown in the economy was already visible before demonetization, it became more pronounced in the second half of the financial year.”
On further growth outlook, Bhardwaj said, “the consumption led story will continue and it will remain the key catalyst of growth aided by easing financial conditions, higher rural wages and boost from impending salary hikes for state, with exports providing further support. However, lower budgeted growth in the general government spending, a key contributor to growth, compared to FY17 along with complete absence of private investment is expected to continue to drag on overall growth. Slow growth along with a sharply lower than expected inflation trajectory is likely to keep RBI on the softer side of the fence.”
Country’s chief economic adviser Arvind Subramanian said that GDP growth is likely to further pick up by 0.75 per cent this fiscal on the back of policy support including macroeconomic measures.
India’s GDP growth was 8 per cent in 2015-16 and 7.5 per cent in the previous year. China had reported a growth of 6.9 per cent in the January-March quarter of 2017. India had for the first time outpaced China in GDP growth rate in 2015.