India retains fastest-growing major economy tag despite cash crackdown

Data released by the Central Statistics Office showed that the rate of growth in the three months ended December slowed slightly from 7.4% in the preceding quarter.

With the GDP growing by 7 percent in the third quarter, India Inc said the economy is getting back on track yet reforms are needed to revive investments and push demand hit by note ban.

Simultaneously, the CSO also marginally revised upwards the GDP estimates for the first and the second quarters to 7.2 per cent and 7.4 per cent, respectively. However, in the fourth quarter investment added 150 bps to GDP, an encouraging sign for the United States' economy heading into 2017.

The government will release GDP growth numbers for the December quarter on Tuesday, providing clues on how the economy has responded to the government decision to outlaw high-value banknotes in November. Last week, National Council of Applied Economic Research cut its growth forecast to 6.9 per cent from its earlier estimate of 7.6 per cent.

While it seems like the economy has taken demonetisation in its stride, these GDP numbers come with some caveats, most important among them being that they only reflect the formal sector.

The International Monetary Fund, which has repeatedly endorsed India as a "bright star" in the global economy, recently slashed India's growth projection by a percentage point to 6.6% for 2016-17 citing the impact of scrapping of old Rs 500 and Rs 1,000 notes on the economy.

Real GDP grew at 1.6% in 2016, a slower pace than the 2.6% rate in 2015. This reflects poor consumer durables output sales in the last few months. Economic Affairs Secretary Shaktikanta Das said the CSO numbers have vindicated the government's position and the criticism of note ban was anecdotal and not supported by data.

The statement said the sectors likely to register growth rate of over 7.0% are "public administration, defence and other services", "manufacturing" and "trade, hotels, transport, communication and services related to broadcasting".

Chief statistician T.C.A Anant said that it was hard to assess the full impact of demonetization. That compares with the 7.2% growth recorded in the year-ago quarter. "I believe that, with a lag, we will see an impact on GDP numbers". On the currency crunch impacting growth in fourth quarter of this fiscal and subsequently, Panagariya said, "Currency shortages which have impacted the transaction would be addressed by the beginning of the fourth quarter".

"Growth is expected to recover in the next financial year".

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