The first GDP numbers after demonetisation put out by the government have surprised all--- the best economists and think tanks that had predicted a lower growth rate.
The first GDP numbers after demonetisation put out by the government have surprised all— the best economists and think tanks that had predicted a lower growth rate. It is, indeed, difficult to believe that the economy is so resilient that it withstood the impact of demonetisation that sucked 86 per cent of currency notes from the Indian economy and come up with q3 GDP number of 7 per cent as against the expected 6.1 per cent. While the government claimed that these growth figures were on the back of growth in agriculture, manufacturing and mining sectors, it seems too good to be true. However, it could well be as the note ban essentially impacted the informal sector and that is not reflected in the GDP numbers.
There are skeptics that say that the numbers are difficult to swallow and these may be superficial numbers. But a careful analysis shows that if manufacturing has gone up by 8.1 per cent, agriculture by 6.4 per cent and mining by a substantial figure, it might well be. Released by the Central Statistical Organisation (CSO), the numbers have vindicated some economists and junked the predictions by the OECD, World Bank, IMF and Fitch who had cut their projections for 2016-17 to even below 7.1% estimated by CSO in January, but most had predicted a healthy recovery in the next two financial years.
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The Reserve Bank of India had also 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. So these stand junked and India keeps the tag of fastest growing major economy in the world. China had clocked 6.8% growth in the December quarter.
While it seems like the economy has taken demonetisation in its stride, these GDP numbers come with some caveats, most important among them being that they only reflect the formal sector. As Chief Economic Adviser Arvind Subramanian last month said the official GDP figures may not fully reflect the “real and significant hardships” experienced by the informal sector, in which an estimated nine out of 10 Indian workers are employed.
The other thing to keep in mind is that the impact of demonetisation my reflect in next quarters when the inventories get exhausted and lag disappears.
Looks like the Indian economy is still resilient.
So enjoy, till it lasts!