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Government Estimate Pegs GDP Growth At 7.1 Percent This Year

Discussion in 'World Economy' started by Tejasmk3, Jan 6, 2017.

  1. Tejasmk3

    Tejasmk3 2nd Lieutant FULL MEMBER

    Oct 22, 2016
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    Government Estimate Pegs GDP Growth At 7.1 Percent This Year

    India’s economy is expected to grow by over 7 percent in fiscal year 2017 despite the hit to economic activity from demonetisation, if the government’s official estimates are anything to go by.

    First advance estimates released by the Central Statistical Organisation on Friday, suggest that gross domestic product (GDP) will grow by 7.1 percent in 2016-17 compared to 7.6 percent last year. On a gross valued added (GVA) basis, the economy is expected to grow by 7 percent compared to 7.2 percent last year.

    The advance estimates have been released earlier than normal this year due to the union budget being advanced to February 1. As such, these estimates only build in officially reported data for the first two quarters of the fiscal year and early indicators of the third quarter. This means that the advance estimates may not fully build in the impact of demonetisation which was announced on November 8.

    According to the CSO’s estimates:

    • GVA for the agriculture sector is expected to grow by 4.1 percent compared to 1.2 percent last year
    • GVA for the manufacturing sector is expected to grow by 7.4 percent compared to 9.3 percent last year
    • GVA for the mining sector is expected to contract by 1.8 percent compared to growth of 7.4 percent last year
    • In the services sector, the financial services segment is expected to see growth of 9 percent compared to 10.3 percent last year
    • The trade, hotels and transport segment is expected to see growth of 6 percent compared to 9 percent last year
    The Demonetisation Hit
    The impact of the government’s decision to withdraw notes of Rs 500 and Rs 1000, which left the economy grappling with a severe cash crunch, is far from clear. While some indicators have reflected weakness, others have held steady.

    For instance, the Nikkei India Services Purchasing Managers’ Index (PMI) showed that the services sector contracted in November and December. The manufacturing PMI, too, showed a contraction in December.

    In contrast, the index of eight core sector industries, which constitute 38 percent of the Index of Industrial Production (IIP), rose by 4.9 percent in November compared to 6.6 percent the previous month. In the agriculture sector, data shows that sowing during the rabi season was 7 percent higher than last year, suggesting that farm output may not be badly hurt because of the note ban.

    While the extent of damage to economic activity remains unclear, most economists have revised their estimates lower for the current and the next fiscal years.

    On the back of the ongoing cash crunch, we expect GDP to grow 5 percent y-o-y in the October-December quarter and 6 percent y-o-y in the January-March quarter, about 2p percentage points lower than we had expected before demonetization was announced. Thereafter, we expect growth to normalize gradually towards the 7 percent ballpark, but remain shy of the 7.5-8 percent range in FY18, due to adjustment costs that businesses and consumers face, in the process of formalization and digitization.Pranjul Bhandari, Chief India Economist, HSBC
    Also Read: Here’s How Bad The GDP Number Could Get...

    Impact On Budget Calculations
    Concerns have also been raised regarding the reliability of the advance GDP estimates for making budget calculations. Earlier this week, opposition parties raised this concern as part of their attempt to get the union budget pushed back.

    In a post on microblogging site Twitter, CPI (M) general secretary Sitaram Yechury said that the advance estimates would present a “wrong and misleading picture of India’s GDP growth rate which is bound to revised downward heavily later on.”

    Economists, too, say that these number would need to be taken with a pinch of salt since economic conditions in the second half of this fiscal year may be materially different from the first half.

    “There are too many assumptions. Too many extrapolations. Particularly this year, with demonetisation, you don’t know how the economy will respond,” said Madan Sabnavis, chief economist at CARE Ratings in a conversation with BloombergQuint earlier this week.
    SrNair likes this.
  2. Echo_419

    Echo_419 2nd Lieutant FULL MEMBER

    Oct 24, 2016
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    The damage will be repaired within 1-2 quarters
  3. vstol jockey

    vstol jockey Colonel MILITARY STRATEGIST

    Mar 15, 2011
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    What damage and by what? This figure is for quarter ending September. Demonetisation happened after that on 09Nov.

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