Note ban hit GDP growth; RBI must cut rates

In what is likely to disappoint investors and the government, India's latest quarterly GDP growth has slowed sharply to 6.1 per cent compared to last year, clocking the slowest growth rate in two years.

Calling the GDP growth of 7.1 percent as "a healthy economic growth number", he added that the GDP growth for the financial year 2017 is a "robust number", which is slightly higher than economic survey projection. "Nevertheless, we continue to expect the MPC to keep the repo rate unchanged in the June 2017 policy review, amid a perceptible softening of the tone of the policy statement", said ICRA in a statement. The monetary policy committee of the RBI meets next week, where it will decide these things.

Gross value added (GVA), a refined parameter of growth which excluded taxes and subsidy, also plunged to 5.6% in January-March compared to last quarter's 6.7%.

The CSO, though, maintained its earlier full-year growth estimate for 2016-17 at 7.1 per cent against eight per cent in the previous year.

The fall or slowdown will be interpreted in different ways, with the Opposition parties finding fault with the government decision to demonetize 86% of currencies in November previous year.

India's economic growth slowed to 7.1 per cent in 2016-17, the year in which 87 per cent of the currency was demonetised, despite a very good showing by the agricultural sector.

"The fourth quarter (6.1 per cent) is a bit weaker than what I expected".

The unexpectedly slowed growth stripped the country of its status as the world's fastest-growing major economy. The corresponding figure of 5% the previous year.

At a press conference, Chief Statistician T.C.A. Anant sought to downplay the impact of the note ban of November past year.

The Year-on-Year growth in gross fixed capital formation recorded a sharp deterioration over the course of FY2017, culminating in a 2.1 percent contraction in Q4 FY2017, reinforcing the assessment of the prevailing lull in investment activity. While manufacturing sector output in the fourth quarter slowed to 5.3 per cent from 12.7 per cent in the year-ago period, the construction sector slipped into the negative territory. Asia's third-largest economy had grown at 8% in 2015-16, according to the government's revised estimates.

Critics had slammed the government's estimates last quarter, saying they did not capture the impact of the currency ban accurately.

The sectors which posted growth rate of over 7.0 per cent at constant prices are "public administration, defence and other services" (11.3 per cent), manufacturing (7.9 per cent), "trade, hotels, transport, communication and services related to broadcasting" (7.8 per cent),'electricity, gas, water supply other utility services (7.2 per cent).

With government sector salaries also expected to rise, the outlook for a sustained recovery looks good.

  • Zachary Reyes