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Demonetisation not factored in: GDP growth estimated to fall to 7.1% in FY17

Manufacturing and mining sectors worst affected

By: ENS Economic Bureau | New Delhi |
January 7, 2017 2:20:32 am
GDP, India GDP, GDP growth, Gross domestic product, GDP 2017, India GDP growth, demonetisation, demonetisation economy, GDP demonetisation, Indian economy growth, indian economy, gdp growth 7.1 to 7.6, demonetisation, gross value added, india news, latest news Chief Statistician TCA Anant at the release of First Advance estimates of GDP of 2016-17 in New Delhi on Friday. (Source: Express photo by Amit Mehra)

India’s Gross Domestic Product (GDP) growth is seen decelerating to 7.1 per cent in 2016-17 (April-March) from 7.6 per cent last year, primarily due to slowdown in manufacturing, mining and construction sectors, the first advance estimates released by the Central Statistics Office (CSO) showed.

CSO has released advance estimates for this financial year a month earlier in line with the advancement of the Union Budget for 2017-18 to February 1. However, the advance estimates of GDP for 2016-17 are based on sectoral data for the first seven months of this financial year (April-October) and do not reflect the impact of the government’s November 8 decision to scrap high-denomination currency notes of Rs 500 and Rs 1,000 on economic growth.

Chief Statistician TCA Anant said that some figures for November were available and examined but “it was felt in view of the policy of denotification of notes there is a high degree of volatility in theses figures and conscious decision was taken not make projection using the November figure”.

ecographThe worst affected sectors include manufacturing and mining sectors, with the GVA growth for manufacturing sector expected at 7.4 per cent, down from 9.3 per cent growth seen a year ago. GVA for mining sector is expected to contract 1.8 per cent as against a growth of 7.4 per cent last year.

Gross Fixed Capital Formation, a proxy for private sector investment, is seen contracting 0.2 per cent in 2016-17 as against a growth of 3.9 per cent last year.

Services sector is also expected to record a slowdown this financial year. GVA for trade, hotels, transport and communication services category is expected at 6.0 per cent as against 9.0 per cent growth last year. Financial, real estate and professional services are expected to register a GVA growth of 9.0 per cent in 2016-17, lower than 10.3 per cent in 2015-16.

Agriculture sector, however, is expected to register a sharp rise in GVA growth at 4.1 per cent in 2016-17 compared with 1.2 per cent growth last year.

Based on Gross Value Added (GVA), the economic growth is expected to slow down to 7.0 per cent in 2016-17 from 7.2 per cent a year ago. A 7.1 per cent GDP growth for the whole year assumes a growth of 7.0 per cent in the second half of the fiscal, given that the Indian economy grew 7.2 per cent in the first half of April-September.

Last year, the Economic Survey had projected the real GDP growth to be 7-7.75 per cent for 2016-17. While the RBI has estimated a 7.1 per cent GVA growth for 2016-17, most economists expect GDP to grow in the range of 6.7-6.8 per cent.

“…projecting GDP growth for the full year by extrapolating the trends up to October 2016 for several sectors, may introduce more errors than in earlier years. This would be particularly appropriate for cash intensive sectors such as construction. Moreover, the unavailability of Corporate filings for Q3 FY2017 and second advance estimates of rabi output (as opposed to the available data on sowing), are likely to constrain the accuracy of the advance estimates,” ICRA’s Principal Economist Aditi Nayar said.

Most economists expect a downward revision in the second advance estimates, which will be released on February 28, as they will include economic data after demonetisation.


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