New Delhi: India’s economic growth is likely to decelerate to 7.1% in 2016-17 from 7.6% the previous year, chiefly due to an industrial slowdown, the government said on Friday, sidestepping the possible impact of demonetisation.
The growth projection by the Central Statistics Office (CSO) was released a month before it is due to help the government prepare the budget, whose presentation has also been advanced by a month to 1 February.
Chief statistician of India T.C.A. Anant said that for the most part, data up to October had been used while in a few cases November data has also been incorporated. The government invalidated Rs500 and Rs1,000 banknotes with effect from 9 November.
Anant clarified that for the financial services sector, which is estimated to grow by 9%, compared with 10.3% last year, growth in bank deposits and credit data for November had not been factored in on account of the demonetisation drive. “There was a high degree of volatility in these figures, so a conscious decision was taken not to include them,” Anant said.
He ruled out any significant change in the final estimate of gross domestic product (GDP) numbers as new data is factored in.
“Our general experience has been aggregate processes tend to display a considerable degree of stability and the estimates which we released in advance have tended to be in very close proximity to the final figure,” Anant said.
The currency crunch that followed the demonetisation of high-value notes was widely believed to have hit consumption, as well as jobs in the informal sector, driving down economic growth.
Crisil Ltd chief economist D.K. Joshi said that since the projection for the full year had been mostly made using the data for the first half (April-September) of the year, there was a degree of overestimation in the forecast.
“Performance of the economy will certainly be weaker in the second half (October-March) of the financial year. The projection for the full year is not based on sufficient information, which may lead to a downward revision in coming days,” he added.
GDP at market prices (now $2.2 trillion) grew 11.9% in 2016-17, higher than the 11% assumption in the current year’s budget. This will make the task of achieving the fiscal deficit target of 3.5% of GDP in 2016-17 that much easier for the government.
Buoyed by a normal monsoon and encouraging sowing data, the farm sector’s growth is projected to accelerate to 4.1% this financial year from 1.2% last year.
However, slower growth in manufacturing (7.4%) and the construction sector (2.9%) and contraction in the mining sector (–1.8%) is expected to drive down overall growth.
Among the services sectors, public expenditure, which has been the key driver of growth this year, is expected to grow 12.8% compared with 6.6% last year. Growth in the trade, hotels and transport sector—the largest services segment—is expected to slow to 6% from 9%.
While private consumption is expected to continue to decelerate (6.5%), investment demand is set to enter negative territory (-0.2%), signalling the dire state of private investment demand.
Another measure of economic activity—gross value added (GVA)—showed the economy growing 7% in 2016-17, compared with 7.2% last year.
GDP growth is arrived at by adding net indirect taxes (indirect taxes–subsidies) to GVA. A lower GVA means the government’s subsidies were lower than its indirect tax collections.
The government has advanced the presentation of the budget to speed up investment expenditure in the productive pre-monsoon months.
“In our existing budget calendar, the authorization of expenditure comes with the onset of the monsoon. This results in government programmes being relatively inactive in the productive pre-monsoon months. Keeping this in view, the date of budget presentation is being advanced so that expenditure is authorized by the time the new financial year begins,” reasoned Prime Minister Narendra Modi at a meeting last month with economists at the NITI Aayog.