The enigma around the GDP growth numbers has compounded, as it understated the impact of demonetisation. Eliminating the dissonance created by large revisions, nominal GDP growth in December quarter may have been impacted by 240 bp and 320 bp on a year-on-year and sequential basis, respectively.
The 7 per cent real GDP growth print for Q3FY17 released by the CSO on Tuesday gives an impression that the demonetisation shock did not have any impact on the economy. It has prompted many to conclude that the earlier grim assessment by many analysts may have been an over-reaction, with a critical bias on the entire demonetisation exercise.
The 7 per cent real growth is only modestly lower than 7.4 per cent in Q2 and somewhat higher than 6.9 per cent a year back. Growth in real gross value added (GVA), which now represents the activity-based GDP, grew at 6.7 per cent in Q3 compared with 6.7 per cent in Q2 and 8.2 per cent a year back.
While the new GDP series (base year 2011-12) has been an enigma since its inception, as it estimates growth numbers much higher than indicated by most industry-level leading indicators, the Q3 release has compounded the puzzle even more.
For instance, how can the economy grow at 12 per cent and 7 per cent in nominal and real terms, respectively, when the lending growth of banks has declined to a 60-year low of 5 per cent. Interestingly, the economy has also grown at this rapid pace with sustained absence of investments over the past 6-7 years, slowing trade, decelerating IT sector, while real estate construction remains in limbo for more than three years and without much job creation.
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