Despite demonetization, India set to retain world's fastest growing tag

The government today pegged GDP growth at a higher-than-expected 7.1% for the current fiscal despite note ban with agriculture sector doing exceptionally well, helping India retain the tag of world's fastest growing major economy.

The Central Statistics Office (CSO) put the growth rate for October-December -- the quarter in which the government banned 86% of the currency in circulation -- at 7%, compared to 7.4% in the second quarter and 7.2% in the first quarter. The growth rate was on a higher base after the CSO revised 2015-16 GDP growth rate to 7.9% from the earlier provisional estimate of 7.6%.

India's growth was higher than China's 6.8% for the October-December period of 2016. 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. The CSO data revealed that GVA (Gross Value Added) is anticipated to increase from Rs 104.70 lakh crore in 2015-16 to Rs 111.68 lakh crore in 2016-17.

"Anticipated growth of real GVA at basic prices in 2016-17 is 6.7% against 7.8% in 2015-16," the release said. The 'agriculture, forestry and fishing sector' is likely to show 4.4% growth in its GVA during 2016-17, as against the previous year's growth of 0.8%. The growth numbers were better than those projected by the RBI (6.9%) and international agencies like IMF (6.6%). The GDP projection for the fiscal at 7.1% in the second advance estimate is same as it was suggested in January by the CSO.

Replying to questions after releasing data, Chief Statistician T C A Anant said that policies like demonetization are very difficult to assess without a lot of data coming. "But the immediate effect is based on the data currently available. We will keep on evaluating our numbers as and when more data is available," he added. Commenting on the data, Ranen Banerjee of PwC India said: "While the Q3 GDP estimates have been put at 7%, this may not have factored in the entire short-term impact of demonetization. The impacts are likely to be more visible in Q4 with the lag effects of November and December becoming more pronounced."

The latest estimates have been arrived at by factoring in discrepancies or the difference between GDP calculated by different methods at Rs 1.18 lakh crore or one% of the Indian economy. It was Rs 45,407 crore or 0.4% of GDP in 2015-16. Meanwhile, the CSO has also marginally revised upwards the GDP estimates for the first and the second quarters to 7.2% and 7.4%, respectively.
The Gross Domestic Product (GDP) at constant (2011-12) prices in 2016-17 is likely to attain a level of Rs 121.65 lakh crore, as against the first revised estimate of GDP for 2015-16 of Rs 113.58 lakh crore, released in January 2017.

The second advance estimates of National Income, 2016-17, revealed that the growth in the GVA from 'manufacturing' sector is estimated to be 7.7% compared to 10.6% in 2015-16. The per capita net national income (current price) during 2016-17 is estimated to be Rs 1,03,818 showing a rise of 10.2% compared to Rs 94,178 during 2015-16 with the growth rate of 8.9%. Private Final Consumption Expenditure (PFCE) at current prices is estimated at Rs 88.40 lakh crore in 2016-17 as against Rs 79.00 lakh crore in 2015-16. At constant (2011-12) prices, the PFCE is estimated at Rs 68.26 lakh crore in 2016-17 as against Rs 63.66 lakh crore in 2015-16.

In terms of GDP, the rates of PFCE at current and constant prices during 2016-17 are estimated at 58% and 56.1%, respectively, as against the corresponding rates of 57.8% and 56.1%, respectively in 2015-16.  NITI Aayog Vice Chairman Arvind Panagariya said: "I have been saying that the (demonetization) impact will not be large. We did not see negative inflation. My hunch was that inflation was held up more or less, therefore GDP growth could not declined very much."

He also pointed that had the second advance estimates were calculated on the basis of lower base of 7.6% GDP growth used in first estimates, the GDP growth would have been slightly better. On the currency crunch impacting growth in fourth quarter of this fiscal and subsequently, Panagariya said, "Currency shortages which have impacted the transaction would be addressed by the beginning of the fourth quarter. The transaction would not be hampered."

The CSO data further revealed that Gross Fixed Capital Formation (GFCF) at current prices is estimated at Rs 40.97 lakh crore in 2016-17 as against Rs 39.89 lakh crore in last fiscal. At constant prices, the GFCF is estimated at Rs 35.55 lakh crore in 2016-17 as against Rs 35.35 lakh crore year-on-year. "In terms of GDP, the rates of GFCF at current and constant (2011-12) prices during 2016-17 are estimated at 26.9% and 29.2%, respectively, as against the corresponding rates of 29.2% and 31.1%, respectively in 2015-16," the CSO said.

Ficci Secretary General Didar Singh said with the second advance estimate for 2016-17 at 7.1%, the data belies the widespread expectation of sub 7.0% growth this fiscal year. "The process of remonetisation is complete and we see the economy getting back on track," he added. Meanwhile, another macro data released by the government revealed that the growth of eight core sectors slowed down to a five-month low of 3.4% in January mainly due to contraction in output of refinery products, fertiliser and cement.