India’s economy expanded at 7.3% in the September quarter, the fastest rate among major economies, but growth could tank at least over the next few months because of the government’s demonetisation drive.
The July-September growth rate announced on November 30 is higher than 7.1% registered in the first quarter of this fiscal, but lower than 7.6% recorded in the corresponding period the previous year. Still it was higher than China’s 6.7%.
“Investment is down substantially and that needs to be watched … but overall steady trend of growth,” the government’s Chief Economic Adviser, Arvind Subramanian, said.
Government officials attributed the growth of the GDP, which stands at Rs 29.63 lakh crore, to higher output in agriculture and construction.
But the growth rate failed to mask the misery inflicted by the government’s surprise move to abolish 500- and 1,000-rupee notes from November 9, sucking out 86% of the cash in circulation. The shock therapy for tax dodgers and counterfeiters has left companies, farmers and households suffering.
The outlook for upcoming quarters is not encouraging as the demonetisation drive dented consumer spending, which makes up 55% of Asia’s third-largest economy.
Finance Minister Arun Jaitley expects a minor impact lasting for a quarter or two. Private economists, however, reckon the impact would be felt through 2018.
Fitch Ratings has already lowered the forecast from 7.4% to 6.9% for the fiscal. The most pessimistic forecast, from Mumbai-based brokerage Ambit Capital, is for a precipitous drop to 3.5% growth.
“Impact of demonetisation in the third quarter is based on a considerable amount of uncertainty. Since we are in uncharted waters, we need to wait for data and need to put in a lot of analysis before we know the impact,” Chief Economic Adviser Subramanian said.
The Confederation of Indian Industry (CII) pointed out that the numbers point to “continuing dependence on consumption and public spending to revive demand, while investments are showing a declining trend as compared to last year”.
Saugata Bhattacharya, the Chief Economist of Axis Bank, followed a similar line. “The numbers show that growth is still dependent on government spending. It is a little surprising that agriculture growth was lower than expected.”
However, CII Director General Chandrajit Banerjee held out hope, saying demonetisation would be a temporary setback.
Source: Hindustan Times
