Barely a week after the Central Statistical Organisation put out new GDP numbers that did not reflect significant economic slowdown after demonetisation, Reserve Bank of India Deputy Governor Viral V Acharya on Monday said that the impact of demonetisation might be seen on some sectors of the economy in the fourth quarter of the current FY 2016-17.
Earlier on February 28, the CSO retained the growth projection for the current fiscal at 7.1 per cent and said: "The growth in GDP during the whole FY 2016-17 is estimated at 7.1 per cent as compared to the growth rate of 7.9 per cent in 2015-16."
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The figures surprised many economists, who had expected the economy to take a bigger hit after government decided to scrap Rs 500 and Rs 1,000 banknotes, taking out 86 per cent of the currency in circulation virtually overnight.
Soon after CSO's new GDP projections, Congress spokesperson Anand Sharma had said the numbers are "misleading" as these do not factor in the adverse impact of demonetisation, including losses in jobs and production.
"The GDP numbers that have been released are surprising and highly suspect. The GDP growth as projected is questionable and will also undermine the credibility of Indian data globally," he had said.
Anand Sharma's suspicion was followed by CSO Chief Statistician TCA Anant's statement that the impact of such large policy change could not be assessed in single-quarter data.
"These have many effects and will take time to work their way through the economy. A simple post hoc one-quarter number cannot assess these impacts. But yes, the third quarter was a period when demonetisation was announced. More than that, I am not going to draw any further conclusions," TCA Anant told Business Standard.
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Viral V Acharya seems to back the CSO's number. "You can see our MPC (Monetary Policy Committee) resolution, which is that our estimate was actually reasonably close to that (of CSO estimate). Of course, the drivers may have been slightly different," he told Business Standard.
"Of course, the drivers may have been slightly different, but I think there are a couple of things that people have raised which would be interesting and worth thinking about, which is how much of the informal sector gets fully captured other than through its links to the formal sector," he further said.
Asked if spill over of note ban could extend to January-March quarter, Acharya said the impact could be felt in some segments. "Ultimately, the cash shortage is like the liquidity shock and unless it had led to a substantial wealth destruction one would expect its effects to be quite temporary. I'm not saying that the temporary impact is not hard on some parts of the economy, you would expect the effect to be temporary," Acharya said.
According to Acharya, the impact of the notes ban would only be temporary and would help in bringing informal sector into the mainstream economy.
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Meanwhile, the US-based Global rating agency Fitch is the latest to express its 'surprise' over India's 7 per cent GDP growth for the October-December quarter.
"This number looks somewhat surprising, as real activity data released since demonetisation pointed to weak consumption and services activity because these transactions are cash-intensive. By contrast, official data suggest that private consumption was strong in the fourth quarter of 2016 (though services output growth moderated quite substantially)," Fitch said.
Fitch expects Indian GDP to grow by 7.1 per cent for 2016-17, before picking up to 7.7 per cent in both 2017-18 and 2018-19.