India’s economic growth slowed to 7.1 per cent in 2016-17 despite very good performance by agricultural sector, the year in which 87 per cent of the currency was demonetised leading to a severe cash crunch and disruption in the economic activities.
The Gross Domestic Product (GDP) was 6.1 per in the January-March quarter, the immediate three months after the demonetisation was affected on November 9, 2016.
With this, India lost its status of the world’s fastest growing economy as China’s GDP grew 6.9 per cent during the same quarter.
The economy grew at the slowest pace in three years mainly on account of poor performance of manufacturing and service sectors and it has come at a time when the Modi Government is celebrating three years in office.
The GDP growth in 2016-17 is slowest in two years. It was 8 per cent in 2015-16 and 7.5 per cent in the previous year.
India had for the first time outpaced China in GDP growth rate in 2015.
“The sharp slowdown in Q4FY16-17 continues to reiterate the fact that demonetisation has taken a toll on FY17 growth. While the slowdown in the economy was already visible before demonetisation, it became more pronounced in the second half of the financial year,” said Upasna Bharadwaj, Kotak Mahindra Bank senior economist.
“Going ahead, we expect the consumption led story to continue and it will remain the key catalyst of growth aided by easing financial conditions, higher rural wages and boost from impending salary hikes for State, with exports providing further support,” said Bharadwaj.
Even top global rating agency Moody’s is also of the view that India’s economic growth will accelerate to 7.5 per cent in current fiscal and the Government’s reform push will help achieve 8 per cent GDP growth rate in about four years
In its Global Macro Outlook, Moody’s Investors Service said the ruling BJP’s victory in Uttar Pradesh elections indicates that the Government has remained politically popular despite the demonetisation exercise.
“We expect marginally faster growth in India. According to our forecast the economy will grow 7.5 per cent in fiscal year 2017 (2017-18) and 7.7 per cent in fiscal year 2018 (2018-19),” it said.
As per the data released by the Central Statistics Office (CSO), the expansion in Gross Value Added (GVA) during the fourth quarter of 2016-17 fell sharply to 5.6 per cent as compared to 8.7 per cent in the comparable period of 2015-16.
For the year as a whole, the expansion in GVA works out to be 6.6 per cent, down from 7.9 per cent a year ago.
The GVA has been declining for the five straight quarters since January-March, 2016.
On November 9, 2016, the Government had demonetised higher value currency which wiped off about 87 per cent of notes in circulation, leading to a severe cash crunch and disruption in the economic activities.
When asked whether note ban has impacted fourth quarter growth, Chief Statistician T CA Anant said a separate analysis is needed, though he admitted that this was one of the dynamics which might have impacted economic performance in third and fourth quarters.
Chief Economic Adviser Arvind Subramanian said demonetisation is a “temporary shock” to the economy and “we are seeing this bottoming out as remonetisation progresses”.
The construction sector was the hardest hit by demonetisation in the fourth quarter and saw a negative growth of 3.7 per cent during the period as compared to 6 per cent in corresponding three months of 2015-16.
The CSO said the growth rate declined in manufacturing, mining, trade, hotels, transport, communication, services related to broadcasting, financial, real estate and professional services, both in the fourth quarter as well in the entire year.
The manufacturing sector GVA growth declined to 7.9 per cent in 2016-17 from 10.8 per cent on yearly basis. The mining and quarrying sector witnessed a sharp deceleration to 1.8 per cent from 10.5 per cent in 2015-16.
The agriculture sector growth, which accelerated to an impressive 4.9 per cent in the last fiscal from a dismal 0.7 per cent a year ago on account of good monsoon, failed to compensate for decline in other sectors of the economy.
In the fourth quarter itself, the agriculture sector GVA rose by 5.2 per cent as compared to 1.5 per cent in the same period of 2015-16.
The data further said the per capita income during 2016- 17 is estimated to have attained a level of Rs 1,03,219 as compared to the estimates for the year 2015-16 of Rs 94,130, showing a rise of 9.7 per cent.
Gross Fixed Capital Formation (GFCF) (current prices), a barometer of investments, is estimated at Rs 41.18 lakh crore in 2016-17 as against Rs 40.03 lakh crore in 2015-16.