Economy weathers note ban storm to grow at 7% in Q3

The first report-card of the economy post demonetisation has come as a surprise.

Though GDP growth slowed to 7 per cent in October-December 2016-17 — the feeblest in over nine quarters — it was still stronger than expected considering the impact of the government’s decision to withdraw high-value currency notes in the economy in this quarter.

In the third quarter of 2015-16, the economy had expanded at 7.5 per cent. In terms of gross value addition, the growth was 6.6 per cent in the third quarter of the fiscal against 7 per cent a year ago.

The Central Statistics Office, in its second advance estimate released on Tuesday, maintained its growth forecast for the fiscal at 7.1 per cent. This is in line with its first advance estimate on January 6. For the second quarter of 2016-17, the CSO estimated GDP growth at 7.4 per cent .

The economy grew at 7.9 per cent in 2015-16 and at 7.2 per cent in 2014-15.

Noting that growth projections for sectors such as financial services and real estate, which are directly linked to consumption, have been lowered in the second advance estimate, Chief Statistician TCA Anant said it is difficult to ascertain the impact of the note ban on the economy.

“We will keep evaluating the numbers. I would not like to draw any conclusions at this stage,” he told reporters.

Explaining the reasons for the sustained growth in GDP, Anant said some sectors such as agriculture, mining and manufacturing had performed better than expected in the third quarter.

The Finance Ministry, which had said demonetisation would result in only a “temporary disruption”, welcomed the data. “GDP numbers are on a high base and negate the negative speculation on demonetisation,” said Economic Affairs Secretary Shaktikanta Das.

Though economists had warned that GDP could slow to 6.5 per cent and 7 per cent this fiscal, the Economic Survey had pegged GDP growth at about 7 per cent.

“The data indicate that the impact of demonetisation was not as severe as expected,” said DK Joshi, Chief Economist, CRISIL, adding that the agency expects GDP to expand by 7.4 per cent in 2017-18. Private and government final expenditure are estimated to rise in 2016-17. Gross fixed capital formation, an indicator of investments, is also expected to grow. Industry is now hopeful of improved prospects in 2017-18.

“Growth is expected to recover in the next financial year,” said industry chamber FICCI.