GVA growth at 2-year low of 5.6%; Farming only bright spot
India’s economic growth fell to 6.1 per cent in the fourth quarter (Q4) of 2016-17 (FY17), primarily because of demonetisation adversely affecting economic activity. This was at least a four-quarter low.
The sectors worst affected were construction and financial services.
Without indirect taxes, growth figures would be more dismal. Gross value added (GVA), the difference between gross domestic product (GDP) and net indirect taxes, grew by only 5.6 per cent in Q4 — the lowest in at least eight quarters, according to official figures released on Wednesday.
In FY17, economic growth was at a three-year low of 7.1 per cent. The previous year, it was 8 per cent.
Economists now expect the Reserve Bank of India (RBI) to change its monetary stance, even if it does not cut the repo rate. The monetary policy committee will meet on June 7. Chief Economic Advisor Arvind Subramanian said demonetisation had a temporary impact. “According to both the IIP (Index of Industrial Production) and the National Income Accounting data, deceleration has been happening since July,” he said.
Prime Minister Narendra Modi had announced the banning of the old Rs 500 and Rs 1,000 notes on November 8 last year.
The discernible impact of the slow growth was on the private sector.
Construction activities contracted 3.7 per cent in Q4 against 3.4 per cent in Q3. Financial services, real estate and professional services rose 2.2 per cent, against 3.3 per cent in Q3.
“These sectors are generally stable and robust, but were adversely impacted by demonetisation,” said D K Srivastava of EY. He added credit growth in financial services catering to the informal sectors slowed down, and the economy would take at least another quarter to recover from the impact of demonetisation.
However, Chief Statistician TCA Anant claimed understanding the impact of the note ban was far more complex. “Determining how a particular policy — from the web of policies — affects growth is a complex task,” he said.
While banks were flush with funds, due to subdued credit off-take, GVA growth of financial services declined, said Devendra Pant, chief economist with India Ratings.
The finance ministry was confident that the economy would grow by 0.50-0.75 percentage points in the current financial year, compared to FY17. “The projection for next year is certainly a pickup by about half a basis point. We said relative to this year, it would pick up by about 50-75 basis points. The economy should be picking up,” CEA Subramanian.
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