CSO stuck to its projection despite the fact that GDP growth for 2015-16 was revised to 7.9 per cent from earlier 7.6 per cent after release of the first advance data. Investment continued to show weakness for the entire financial year even though it was shown to rise against contraction in earlier data. First advance estimates did not take into account the impact of demonetisation, while the second one factored it in terms of latest available data.
Prime Minister Narendra Modi had announced demonetisation of old series Rs 1,000 and Rs 500 notes on November 8, leading to severe cash crunch in e economy. Economists and analysts had expected this to adversely affect growth, some even predicting it to be below 6 per cent in the third quarter.
Analysts polled by Reuters expected Q3 GDP growth to be 6.4 per cent; those polled by Bloomberg expected it to be 6.1 per cent. Contrary to expectations, gross value added (GVA) grew at 6.6 per cent for the quarter; it is expected to grow at 6.7 per cent for the full year.
However, there was some impact of demonetisation. For instance, in the first advance estimates GVA was projected to be 7 per cent for 2016-17. Due to higher indirect taxes, net of subsidies, GDP growth came at 7.1 per cent in the second advance estimate as well.
Chief Statistician T C A Anant said, “Lower GVA has been compensated for by higher taxes and lower subsidies.”
For third quarter, State Bank of India group Chief Economic Advisor Soumya Kanti Ghosh attributed better-than-expected growth to the steep downward revision of Q3 FY16 growth to 6.9 per cent, masking the impact of demonetisation. “Even then it seems a little difficult to understand that the positive effect of downward revision in previous year is strong enough to overpower the negative effect of demonetisation in Q3FY17,” he said.
According to CSO data, manufacturing GVA for Q3 grew 8.3 per cent year-on-year, compared to 6.9 per cent in Q2.
Sunil Kumar Sinha, principal economist, India Ratings, said GDP data for the third quarter was better than the rating agency’s forecast of 6.5 per cent, as the period before demonetisation kicked — approximately half of Q3 — is likely to have made the difference. “This is the period in which both Dussehera and Diwali fell when most of the incremental consumption spending takes place,” he said.
Agriculture, forestry and fishing grew 6 per cent in Q3 versus 3.8 per cent in Q2, while mining and quarrying activity grew 7.5 per cent in Q3 versus -1.3 per cent in Q2. Also government-supported expenditure in the form of public administration, defence and other services rose 11.9 per cent against 11 per cent in this period.
The only sectors showing slower growth in the third quarter compared to the preceding one were construction (2.7 per cent in Q3, 3.2 per cent in Q2), and financial, real estate and professional services, (3.1 per cent in Q3; 7.6 per cent in Q2).