India remains fastest growing economy, no hits taken due to demonetisation

As per the advanced estimates released by the Central Statistical Organisation (CSO) on Tuesday, the Indian economy grew at 7 percent during the quarter ended December 2016. Although the GDP grew a tad slower than the 7.4 percent recorded in the previous quarter, it bettered China's 6.8 percent growth during the same period, making India the fastest growing economy for the second consecutive quarter.

The CSO projected a 7.1 percent GDP growth rate for the fiscal year ending 31 March 2017.

It is interesting to note that these numbers have trumped the IMF predictions, which, in its report last week, scaled down its India growth projections for FY17 to 6.6 percent, after having predicted a rate of 7.6 percent earlier. The RBI had also predicted a 6.9 percent growth.

"There was just a temporary impact of demonetisation, which is over now. There was an overestimation about the effect of demonetisation by some. It is satisfying to note that this was not true. We still remain a seven percent-plus GDP country," said Economic Affairs Secretary Shaktikanta Das, at the event where the stats were unveiled.

Most economists expressed shock over the fact that “we may have just leapfrogged the impact of demonetisation” like an SBI report states, and predicted that numbers showcasing the aftershocks of demonetisation would only show up after more time elapses. A Reuters poll had predicted a 6.4 percent growth for the quarter consisting of PM Modi's demonetisation.

"The GDP estimates significantly overshoot the expected figures and that's why I feel that the overall impact of demonetisation has still not been factored into these estimates. I expect the impact of demonetisation to linger on for at least another quarter or so, and based on that, I feel that the final GDP numbers would be significantly lower," said Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank, according to an NDTV article. Ranen Banerjee of PwC India, as interviewed by DNA, echoes her thoughts, stating that the impact of demonetisation will be more visible in the stats surrounding Q4, rather than Q3.

The SBI report, Ecowrap, says the growth in construction and finance sub-segments were at a seven-quarter low, and at an all-time low, respectively, as far as this fiscal is concerned, but show promise of recovery in Q4. The report also points out that cement dispatches for January 2017 declined by a staggering 13 percent, probably indicating a hit that construction activity may have also taken.

While bank credit growth is still at December 2016 levels, international prices of gold also took a hit as Indian demand momentarily reduced. The silver lining is that Agriculture and Allied Activities has been projected to grow at 4.4 percent in FY17, compared to last year's 0.8 percent. This is supported by other macro data released by the government, which indicates that eight core sectors experienced a five-month low of 3.4 percent in January, owing to shrinkage in output of refinery products, fertiliser, and cement.

Industry bodies like the Federation of Indian Small and Medium Enterprises insist that the notes ban had repercussions, and they experienced difficulties in carrying on day-to-day activities and also saw demand evaporate, states the same NDTV article.

The sale of two-wheeler vehicles, a proxy for rural demand, fell for a third straight month in January. Services activity plunged into contraction following the notes ban, and still hasn't recovered fully, while factory activity also declined in December before returning to a modest growth in January.

In FY15 and FY16, our economy grew at 7.2 and 7.6 percent, respectively. As far as Q1 and Q2 of FY17 are concerned, we exhibited a growth of 7.2 and 7.4 percent, respectively. The CSO data also states that Gross Value Added (GVA) will increase from Rs 104.70 lakh crore in 2015-16 to Rs 111.68 lakh crore in 2016-17.