Economy grows at weak 1.9 percent in Q4

Growth for 2016 was only 1.6 percent, the lowest level in five years, compared with an increase of 2.6 percent in 2015. This helped India retain the title of the world’s fastest-growing economy.

Reflecting the impact of Prime Minister Narendra Modi’s demonetisation drive, Gross Domestic Product (GDP) growth for the quarter ended December 31, 2016 contracted to 7 per cent.

The Economic Survey had pegged the FY2017 growth rate in the range of 6.5 to 6.75 percent. Spending on residential construction increased at a 9.6 percent rate, which was downwardly revised from the 10.2 percent pace reported last month.

Overall, the United States economy grew by 1.6 per cent over 2016 as a whole, making it its weakest year in five years. Advance GDP growth estimate for current fiscal is now at 7.1%, unchanged from its earlier projection.

The CSO is also slated to release the numbers for the third quarter which witnessed cash crunch following the government’s decision to scrap high value notes on November 8.

GDP contributions are frequently broken into numbers for private consumption, private investment, government spending, and net trade.

Most economists expressed surprise at the numbers. I believe that, with a lag, we will see an impact on GDP numbers, ‘ he added. The opposition parties had attacked the Centre’s move saying that it would significantly impact the GDP growth.

Accordingly, Moody’s has revised its real GDP growth forecast to 2.4 per cent in 2017 and 2.5 per cent in 2018, from 2.2 per cent and 2.1 per cent, respectively. In comparison, China had recorded a GDP growth of 6.8 per cent for the same period.

Having listed these caveats, two set of statistics can be cited to show that the government might have strategically mitigated the adverse impact of demonetisation through its timing and fiscal policy. The sharp turnaround in investment activity, to a growth of 3.5% in Q3 FY2017 from the contraction in H1 FY2017 is also unexpected. “Subsequent estimates that draw from wider data sources, may well revise Q3 FY2017 growth downward”, ICRA’s Principal Economist Aditi Nayar said.

Hairsplitting the data, analysts pointed out that while the real GVA at 6.6 per cent was broadly similar to 6.7% in Q2, it suggests little or no impact of demonetisation on aggregate economic activity.

The silver lining, so to speak, is in the agriculture sector (agriculture, forestry and fishing), which is projected to grow at 4.4 per cent in FY2017 as against 0.8 per cent in the previous fiscal.