The Indian economy remained the world’s fastest growing major economy in the July-September quarter rising on the back of healthy growth in agriculture but the outlook in the quarters ahead is clouded by the impact of the government’s demonetisation move.
Data released by the Central Statistics Office (CSO) on Wednesday showed the economy grew an annual 7.3% in the July-September quarter, marginally faster than previous quarter’s expansion of 7.1%. It grew 7.6% in the JulySeptember 2015-16. The JulySeptember quarter is the second quarter (Q2) of the country’s fiscal year which starts in April.
Growth was powered by the farm sector, which grew an annual 3.3% during Q2 compared to 1.8% expansion in the previous quarter. Manufacturing sector growth slowed to 7.1% in July-September compared to 9.1% expansion in April-June quarter. The 7.3% GDP growth in the second quarter is higher than China’s 6.7% growth. Economists said growth for the full year could slow to 7% due to impact of the government’s decision to scrap some high value notes. The government has said that it expects the impact to last for about two quarters before growth comes back on track.There are varying estimates of how demonetisation will dent economic growth.
“While we had estimated a GDP growth of 7.3% for FY17, post demonetization on the assumption of attainment of normalcy from January 2017, we estimate that GDP could slow to 7% in FY17 with a strong downside risk as barring the government sector all the other segments of the economy have recorded subdued growth,” Madan Sabnavis, chief economist at Care ratings said in a note.
“An aggressive growth of 7% for FY17 would be contingent on growth in Q3 being in the range of 5.5-6% and that in Q4 being 7.5-8%,” he said.
The finance ministry’s chief economic adviser Arvind Subramanian said the government was analysing data against the backdrop of uncertainty in the second half of the fiscal year. “What we have for first half are actual numbers. It shows good consistent performance. For second half, we will have to see, there is a lot of uncertainty . We have to analyse it before we say something,” Subramanian told reporters. “There is good news in the sense that real GDP growth has picked up, so there is a kind of steady improvement. There is some indication of some improvement in underlying strength in the economy , which is reflected in the fact that nominal GDP growth has accelerated,” he said.
Asked about the impact of demonetisation in the quarters ahead, he said it will be subject to some amount of uncertainty . “We are in the process of analysing all the data and we will do the analysis in good time. Uncertainty is on the monetary impact, short term and long term benefits.Since we are in unchartered water, we need to get a lot of data and need to put in a lot of analysis before we can come up something meaningfully worthwhile to reflect on,” Subramanian added.