GDP growth may slow to 7.1%

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Impact of high value currency ban is not reflected as the GDP figures are based on sectoral data for seven months only

India’s GDP growth could slow to 7.1 per cent in the current fiscal from 7.6 per cent in the previous year due to slump in manufacturing, mining and construction sector, the Central Statistics Office said on Friday.

However, analysts said the actual GDP figure could be even lower given that the CSO has not factored in deflationary impact of demonetisation, which was announced by the prime minister on November 8.

The CSO’s gloomy projection is likely to lead to calls for new fiscal sops from finance minister Arun Jaitley who is scheduled

to present new budget on February 1.

Releasing the data, CSO Chief Statistician T C A Anant said the figures for November were available and examined but "it was felt in view of the policy of denotification of notes there is a high degree of volatility in theses figures and a conscious decision was taken not to make projection using the November figure".

Accordingly, the 'First Advance Estimates of National Income 2016-17' are based on sectoral data for only seven months or till October.

Real GDP or Gross Domestic Product (GDP) at constant (2011-12) prices in the year 2016-17 is likely to attain a level of Rs 121.55 lakh crore, as against the Provisional Estimate of GDP for the year 2015-16 of Rs 113.50 lakh crore, released May 31, 2016.

The CSO projections on national income are now in line with the Reserve Bank's estimates, which too has lowered the GDP growth forecast to 7.1 per cent.

"Anticipated growth of real GVA at basic prices in 2016-17 is 7 per cent against 7.2 per cent in 2015-16," the CSO said.

In value terms, the Gross Value Added (GVA) at constant prices is anticipated to increase from Rs 104.27 lakh crore in 2015-16 to Rs 111.53 lakh crore in 2016-17.

'Agriculture, forestry and fishing' is expected to expand by 4.1 per cent in 2016-17 from 1.2 per cent.

On the other hand, mining and quarrying is likely to shrink by 1.8 per cent after recording a growth a 7.4 per cent in 2015-16.

Growth in manufacturing is expected to slow to 7.4 per cent from 9.3 per cent and construction activities to 2.9 per cent from 3.9 per cent.

As per the data, the per capita net national income (at current prices) during 2016-17 is estimated to be Rs 1,03,007 showing a rise of 10.4 per cent as compared to Rs 93,293 during 2015-16 with the growth rate of 7.4 per cent.

With India's GDP growth expected to slow, industry said further downward risks to growth prevail as demonetisation could pull down economic growth in the next one or two quarters.

“As per the Advance Estimates, while there is an upsurge in the growth of public investment, this has yet to crowd in private investment which continues to be sluggish thereby stymying growth," CII Director General Chandrajit Banerjee said.

Industry body Assocham said further downward risks to growth still prevail in the form of continuous fall in fixed investments and index of industrial production, unsolved problem of bank NPAs in India, political risks in the euro area and the UK, emerging geo-political risks and the spectre of financial market volatility.

Reuters adds: The projection, however, does not fully account for the disruption caused by prime minister Narendra Modi's decision to abolish high-value old currency bills.

The gross domestic product (GDP) is estimated to achieve annual growth of 7.1 percent in the fiscal year 2016/17, slower than a provisional figure of 7.6 percent for 2015/16.

Most private economists have pared their growth forecasts to 6.3-6.4 percent for 2016/17, citing the impact of the demonetization, which they reckon will linger for one more year.

The GDP estimate is a cornerstone of finance minister Arun Jaitley's budget on Feb. 1. But the federal statistics office said the projection was mostly based on data available by the end of October.

Modi's decision on Nov 8 to scrap Rs 500 and Rs 1,000 banknotes as part of a crackdown on tax dodgers and counterfeiters has inflicted pain on companies, farmers and households.

"I am very worried with the projected growth rate," said Aneesh Srivastava, chief investment officer at IDBI Federal Life Insurance Co.

"Take demonetisation into account, the rate will substantially drop," he said, adding that he expected full-year growth to be well below 6.8 percent.

Until last year, the government's statisticians would wait for GDP data for the quarter through December before putting out full-year estimates.

This year, that quarter's figures will not be available before the end of February, making the projection largely reliant on the economy's performance in the period before demonetisation, when consumer demand was strong.

The statistics office will release the data on Feb. 28, along with revised full-year growth estimates.

MORE PAIN AHEAD

The withdrawal of 86 percent of cash out of circulation has disrupted supply chains at small, medium and even larger companies and left many customers short of cash.

Modi had called for patience until Dec. 30. While his deadline has passed, the pain has not. Services industry shrank for a second straight month in December amid a severe cash shortage. Manufacturing activity plunged into contraction too. The cash crackdown has also hit capital investments.

New investment proposals slumped by nearly 61 percent to $121.21 million a day between Nov. 9 and Dec. 31 from the period between Oct. 1 and Nov. 8, according to the think-tank CMIE.

"Mostly the impact of demonetization will be proportionally higher in micro-, smaller- and medium-scale enterprises," said Varun Khandelwal, managing director at Bullero Capital.

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