India retains fastest-growing major economy tag despite cash crackdown

Despite expectations of a lower Gross domestic product growth, India's economy performed better than expected at 7 per cent in the third quarter of this financial year.

India's economy defied expectations on Tuesday to retain the title of the world's fastest-growing major economy, despite Prime Minister Narendra Modi's cash crackdown.

Gross domestic product (GDP) growth slowed to an annual 7.0 percent in October-December from 7.4 percent the previous quarter. Analysts polled by Reuters had expected a 6.4 percent growth rate. India's growth was higher than China's 6.8 percent for the last three months of 2016.

The Central Statistics Office or CSO has retained the growth projection for the current fiscal at 7.1 per cent and said: "The growth in GDP during 2016-17 is estimated at 7.1 per cent as compared to the growth rate of 7.9 per cent in 2015-16."

It also marginally revised upwards the GDP estimates for the first and the second quarters to 7.2 per cent and 7.4 per cent.

The figures surprised economists, who had expected the economy to take a bigger hit from the government's decision to outlaw old 500 rupee and 1,000 rupee banknotes, taking out 86 percent of the currency in circulation virtually overnight.

"Perhaps this data is not capturing the impact of demonetisation," said Aneesh Srivastava, chief investment officer, IDBI Federal Life Insurance Co.

"I am totally surprised and stunned to see this number ... I believe that, with a lag, we will see an impact on GDP numbers."

Earlier, the first advance estimates of National Income 2016-17 pegged the GDP growth at 7.1 per cent but did not take into account the impact of demonetisation. Soon after demonetisation, several government and private agencies revised estimates for India's GDP growth downwards.

The Reserve Bank of India (RBI) in its sixth-bimonthly policy pegged the GDP growth at 6.9 per cent for the 2016-17. This was followed by multilateral funding agency Asian Development Bank (ADB) which lowered it to 7 per cent for the current fiscal due to the impact of demonetisation.

The National Council of Applied Economic Research (NCAER) expects the economy grow at 6.9 per cent against an earlier projection of 7.6 per cent.

The Economic Survey released almost a month ago pegged the growth for the current fiscal at 6.5-6.75 per cent. Moving in sync was the International Monetary Fund (IMF) which saw the economy growing at 6.6 per cent - significantly lower than its initial estimate of 7.6 per cent.

Recently, Moody's Investors Service cut its forecast for India's GDP growth in 2017 by 40 basis points to 7.1 per cent because of the impact of demonetisation.

Economic Affairs Secretary Shaktikanta Das reacted to CSO's latest forecast and said this year growth figures are on a high base of last fiscal and numbers "do not show much negative impact of demonetisation".

This year, Real Gross Value Added or GVA is anticipated to increase from Rs 104.70 lakh crore in 2015-16 to Rs 111.68 lakh crore in 2016-17. "Anticipated growth of real GVA at basic prices in 2016-17 is 6.7 per cent against 7.8 per cent in 2015-16," the release said.

The 'agriculture, forestry and fishing' sector is likely to show 4.4 per cent growth in its GVA during 2016-17, as against the previous year's growth of 0.8 per cent.

The second advance estimates of National Income, 2016-17, revealed that the growth in the GVA from 'manufacturing' sector is estimated to be 7.7 per cent compared to 10.6 per cent in 2015-16.

(With inputs from Reuters)