New Delhi, January 7: The advance estimate of 7.1 per cent GDP released by Central Statistical Organisation (CSO) could be erroneous as it fails to cater to data for the months after demonetisation.
Domestic rating agency ICRA on Friday pegged the expected growth for 2016-17 lower at 6.8 per cent. “Given the impact of demonetisation on actual activity from mid-November 2016 onward, projecting GDP growth for the full year by extrapolating the trends up to October 2016 for several sectors, may introduce more errors than in earlier years. This would be particularly apt for cash intensive sectors such as construction,” said ICRA in a statement.
ICRA anticipates GDP (gross domestic product) and GVA (gross value added, which excludes taxes and subsidies) growth for FY2017 at 6.8 per cent and 6.6 per cent respectively, which is lower than the advance estimates of CSO. CSO pegged growth of real GVA in 2016-17 at 7 per cent against 7.2 per cent in 2015-16.
ICRA further pointed out that unfolding trend in sub-sectors such as manufacturing, agriculture, electricity and construction could result in lower growth.
ICRA said unavailability of corporate filings for third quarter of FY2017 and second advance estimates of Rabi output (as opposed to the available data on sowing), are likely to constrain the accuracy of the advance estimates.
While Rabi sowing has grown by a healthy 7 per cent on a subdued base, activity and incomes related to non-crop agricultural sectors including horticulture and livestock may have been adversely impacted by the liquidity crunch, it added.
Yesterday, Former Deputy Chairman of erstwhile Planning Commission Montek Singh Ahluwalia also forecasted at least 1 -2 % fall in the GDP growth. Ahluwalia had said government should immediately take steps to put the economy back over the 7 percent growth.
“Instead of 7 per cent, the economic growth will be 5 plus or 6 plus this year,” said Ahluwalia.
Citing the underlying strength in Indian economy, Ahluwalia said, once the shock due to demonetisation is behind us, economic growth should be above 7 per cent.
An editorial “India’s Slowing GDP Growth Forecast to 7.1% Does Not Include Effects Of Demonetisation” published in Forbes says, “demonetisation has caused a reasonably serious hit to GDP this quarter past. It would not surprise me if growth was negative in fact–although that most certainly not my central guess. Others have suggested 1, 2, 4% hits to growth as a result of the demonetisation. I find all of them believable and wouldn’t want to have to choose between them.
The effects of demonetisation on Indian industry, manufacturing, and supply chain are far reaching and the forecast on GDP growth can not be accurately accounted until it caters perils left out by note ban on all the sectors.