India Q3 GDP growth seen slowing to about 6% on demonetisation

India Q3 GDP growth seen slowing to about 6% on demonetisation

India Q3 GDP growth seen slowing to about 6% on demonetisation

Economic growth in the the fourth quarter of 2016 was unrevised in the latest report released by the Commerce Department on Tuesday.

When asked whether the GDP growth numbers factored in the impact of demonetisation, Chief Statistician TCA Anant said, "I can only tell you what third quarter figures show".

Accordingly, Moody's has revised its real GDP growth forecast to 2.4 per cent in 2017 and 2.5 per cent in 2018, from 2.2 per cent and 2.1 per cent, respectively.

Despite the low trajectory, GDP data from the end of 2016 and more recent indicators suggest the economy is on fairly solid footing as February comes to a close.

Some base effect phenomenon - a statistical issue that magnifies the growth - and some data juggling keeps India's tag of the fastest growing economy in the world intact for now. The manufacturing sector also showed surprising results, as it grew by 8.3 per cent compared to 6.9 per cent in the previous quarter. While the former is expected to grow at 7.3 per cent (10.7 per cent in FY2016), the growth in finance, insurance, real estate is projected to come in at 6.5 per cent (10.8 per cent in FY2016). Since all the growth estimates have moved south, any good news from the CSO would come as a surprise.

The CSO also retained its full-year growth forecast of 7.1%, against 7.9% in the financial year that ended in March 2016.

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Most economists, meanwhile, are forecasting growth for this year of between 2 percent and 2.5 percent.

The government announced demonetisation or note ban of Rs.500 and Rs.1,000 notes on November 8 midnight to curb black money and terrorism and promote digital transactions. Economic Affairs Secretary Shaktikanta Das said the CSO numbers have vindicated the government's position and the criticism of note ban was anecdotal and not supported by data. Vehicle sales, 2-wheeler and 3-wheeler sales, and durable and fast moving consumer goods purchases have all reported a decline in the October-December quarter. "I believe that, with a lag, we will see an impact on GDP numbers".

During the quarter, small firms with sales of less than 1 billion rupees ($14.9 million) "faced the heat of the demonetization drive" as a large proportion of their transactions are conducted in cash and operations were impacted quite markedly, the Indian credit rating agency said.

The statement said GDP at constant (2011-12) prices in Q3 of 2016-17 is estimated at Rs. 30.28 lakh crore, as against Rs. 28.31 lakh crore in Q3 of 2015-16, showing a growth rate of 7.0%.

The first growth rate projection for FY2017 was 7 to 7.75 percent.

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