OPINION

Resilience reaffirmed

The resilience of India’s economy has been reaffirmed by the latest data, with both the third-quarter and full-year growth estimates belying widespread concerns that the November 8 decision to withdraw high-value currency notes would significantly dampen momentum. While the Central Statistics Office stuck with its January advance estimate for gross domestic product in the 12 months ending March 2017 to post a healthy 7.1% growth, it projected GDP to have expanded 7% in the fiscal third quarter, reflecting only a marginal slowdown from the 7.3% registered in the preceding three-month period. Notably, this expansion occurred in the October-December quarter, when about 86% of the currency in circulation in the form of Rs. 500 and Rs. 1,000 notes was abruptly sucked out of the system, potentially resulting in what the Economic Survey termed an “aggregate demand shock” and the Reserve Bank of India referred to as “demand compression associated with adverse wealth effects”. Undergirding this better-than-expected performance were the agriculture, mining and manufacturing sectors and, interestingly, government expenditure. While the overall gross value added (GVA) in the third quarter is estimated to have increased by 6.6%, agricultural GVA in the period is projected to have surged 6%, a sharp quickening from the second quarter’s 3.8% pace and in stark contrast with the 2.2% contraction in the earlier year, as the near-normal monsoon in 2016 helped lift kharif crop output substantially. Mining and manufacturing GVA too appear to have done far better than in the preceding quarter, bucking the so-called ‘demonetisation drag’ to post 7.5% and 8.3% growth, respectively. Public administration, defence and other services clocked double-digit GVA growth: at 11.9%, a robust acceleration from the 7.5% in the third quarter of 2015-16.

It is only the financial, real estate and professional services segment, which is linked to consumption, that lagged, with the pace of expansion more than halving from the July-September quarter to a modest 3.1% increase. Chief Statistician T.C.A. Anant has said the government will continue to keep evaluating the numbers in relation to the impact of demonetisation, even as the CSO trimmed its full-year GVA growth estimate to 6.7% from the 7% projected in January. This 30 basis points cut in the GVA growth estimate is more in sync with the projection of one quarter of a percentage point to half a percentage point slowing in its baseline real GDP growth assumption of 7% that the Economic Survey had posited. The Survey had also made a cautionary assertion that recorded GDP growth would “understate” the overall impact of demonetisation as “the most affected parts of the economy — informal and cash based — are either not captured in the national income accounts or, to the extent they are, their measurement is based on formal sector indicators.” When dealing with statistics, it is safer to keep all the caveats in mind.

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