In a major indication that Prime Minister Narendra Modi's demonetisation move may have hit the economy harder than it let on, the country's Gross Domestic Product in the January-March quarter grew at the slowest pace in at least four quarters at 6.1 per cent as against a 7 per cent growth in October-December. However, the GDP growth rate was kept unchanged at 7.1 per cent for the 2016-17 financial year, despite expectations that the revision of GDP in line with the new series of the Wholesale Price Index and the Index of Industrial Production would yield a higher growth rate of around 7.6 per cent.
Construction sector reflected a sharp contraction while financial services sector grew at single-digit pace during the fourth quarter. The unchanged 7.1 per cent growth for the last financial year has come on the back of a significant upward revision in growth for April-June quarter, with GDP growing at 7.9 per cent in the revised series as against 7.2 per cent in Jan-March growth slows down to just above 6 per cent growth estimated earlier.
According to the new series, while GDP growth was recorded at 7.5 per cent in July-September compared with earlier estimate of 7.4 per cent, it was unchanged at 7.0 per cent for October-December quarter. Gross Value Added growth, which is GDP minus net taxes and serves as a more closely watched estimate for quarterly growth also fell sharply to 5.6 per cent in January-March from 8.7 per cent last year and 6.7 per cent in October-December. Chief Technician TCA Anant said the impact of demonetisation on GDP needs to be studied in detail.
“Analysis of policies like demonetisation cannot be done through simple post hoc ergo propter hoc. Because it is after this, so it is because of this... impact analysis of a policy is an extremely sophisticated field in econometrics. I would caution against reading a single number which comes after an event as being reflective of the consequences of the event,” he said.
Demonetisation cannot be identified as the sole reason for slowdown as several factors were at play, finance minister Arun Jaitley said. He asserted that 7-8% growth was “fairly reasonable“ against the backdrop of the current global situation. “There are several factors which can contribute to GDP in a particular quarter. There was some slowdown visible given the global and domestic situation even prior to demonetisation last year,” Jaitley told a news conference to mark three years of the Modi government.
“There was impact of global factors. There could be some impact in one quarter or two quarters of one particular factor (demonetisation),” the FM said. He added that the services sector particularly financial services, which had witnessed 9-10% growth - had slowed.
