Will India lose ‘fastest-growing’ economy tag to China? How demonetisation may impact GDP forecast due today

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Earlier on January 6, the CSO had released its first advance estimate of India’s GDP for the current fiscal at 7.1%, but had not taken into account the slowdown seen in November citing high volatility in the figures. (Illustration: Rohnit Phore)

In an official estimate of the impact of demonetisation on India’s economy, a top government agency is set to unveil its projection on India’s GDP for the current financial year 2016-17 ending March 31, capturing the information for the months of November and December, when the influence of the note-ban on businesses and consumers was at the peak.

The Central Statistics Office is set to unveil today evening its revised advance estimate of India’s GDP for the fiscal 2016-17, and also its estimate of the GDP in the fiscal third quarter October-December.

Earlier on January 6, the CSO had released its first advance estimate of India’s GDP for the current fiscal at 7.1%, but had not taken into account the slowdown seen in November citing high volatility in the figures.

Releasing the data compiled by the CSO in January, Chief Statistician TCA Anant had said the figures for November were available and examined, but “it was felt in view of the policy of denotification of notes that there is a high degree of volatility in these figures and a conscious decision was taken not to make projection using the November figure”.

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EXCL Urjit Patel, Governor, @RBI: #GDP forecast of 7.4% for FY18 is a highly respectable growth rate. pic.twitter.com/y108chWtd4

— CNBC-TV18 News (@CNBCTV18News) February 17, 2017

This year has been unusual for the CSO as it had to release the advance estimates of GDP about a month earlier than the general practice of doing so on February 7 in view of early presentation of the Budget. Accordingly, the First Advance Estimates of National Income, 2016-17, did not take into account the impact of demonetisation.

A number of think-tanks and experts have cut their projections for 2016-17 to even below 7.1% estimated by CSO in January, but most have predicted a healthy recovery in the next two financial years.

Paris-based think tank OECD (Organisation for Economic Cooperation and Development) today cut India’s growth forecast to 7% for 2016-17 in view of demonetisation, but said the pace will accelerate to 7.3% in the next fiscal. The organisation forecast the country’s economic growth to rise further to 7.7% in 2018-19.

The Reserve Bank of India cut its GDP growth forecast for this fiscal to 6.9%, but at the same time, projected a rebound in the next fiscal at 7.4%. Earlier this month, the International Monetary Fund in its annual report on India had forecast that the GDP growth will slow to 6.6% in 2016-17 due to “temporary disruptions” caused by demonetisation, but also said it will bounce back to its expected growth of more than 8% in the next few years.

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A Reuters news report painted a gloomy picture, saying that India’s GDP growth is tipped to slow down to a near three-year low in the October-December period, losing the title of the world’s fastest-growing major economy to China. The median estimate from a Reuters poll showed economists expect economic growth to slip to 6.4% in the last quarter, lower than China’s 6.8% in the same period.

However, that might not be all. Earlier last month, Chief Economic Adviser Arvind Subramanian said the official GDP figures may not fully reflect the “real and significant hardships” experienced by the informal sector, which employs about nine out of 10 workers in India.

This article was sourced from http://transactionsmagazine.com