Slowdown in GDP growth intensified by note ban, notes ICRA

New Delhi [India], May 31 (ANI): Soon after the Central Statistics Office (CSO) released the new estimates of the growth of the Gross Domestic Product (GDP) in the fourth quarter of the current financial year, credit-rating body ICRA asserted that the slowdown in the growth of GDP that had already set was intensified by the note ban.
Demand and purchases during the festive season and a favourable base effect appear to have couched the impact of the note ban on consumption growth in Q3 FY2017, which was followed by a sharp dip in Q4 FY2017, the chamber said.
GDP growth for Q1 FY2017 had been revised upward sharply to 7.9 percent from 7.2 percent. Consequently, GDP growth has displayed a downtrend over the quarters of FY2017, from 7.9 percent in Q1 to 7.5 percent in Q2 to 7 percent in Q3 and further to 6.1 percent in Q4.
The Year-on-Year growth in gross fixed capital formation recorded a sharp deterioration over the course of FY2017, culminating in a 2.1 percent contraction in Q4 FY2017, reinforcing the assessment of the prevailing lull in investment activity.
The sharp expansion in government consumption expenditure in Q4 Fy2017 bolstered GDP growth from an even sharper slowdown.
"GDP and GVA growth in Q4 FY2017 have surprised on the downside. Nevertheless, we continue to expect the MPC to keep the repo rate unchanged in the June 2017 policy review, amid a perceptible softening of the tone of the policy statement," said ICRA in a statement.
Contrary to expectations, GVA growth slid sharply to 5.6 percent in Q4 FY2017 from the revised 6.7 percent in Q3 FY2017, on account of an unfavourable base effect, some impact of the note ban on sectors such as construction, and an unsurprising moderation in agricultural growth.
The sequential dip in GVA growth was broad-based, led by all the sub-sectors except mining and quarrying and public administration, defence, the chamber further noted.
The muted performance of construction; financial, real estate and professional services and trade, hotels, transport and communication underpinned the lower than expected GVA growth print for Q4 FY2017.
As per the new estimates, the Indian economy grew at 7.1 percent in 2016-17 in line with the expansion projected in February, after a 6.1 percent growth in January-March quarter, indicating stress of demonetisation.
According to the results of the fourth quarter of 2016-17, the GDP is estimated to grow at 7.1 percent, registering a year-on-year growth in quarterly GDP of 6.1 percent.
The estimates of quarterly GDP have been compiled using the new series of Index of Industrial Production (IIP) and Wholesale price Indices (WPI), with base 2011-12.
GDP at current prices in the year 2016-17 is estimated at Rs. 151.84 lakh crore, showing a growth rate of 11.0 percent over the estimates of GDP for the year 2015-16 of Rs.136.82 lakh crore.
According to the latest estimates available on the IIP, the index of mining, manufacturing and electricity registered growth rates of 7.7percent, 1.8 percent and 4.3 percent respectively, in Q4 of 2016-17. In the transport and communication sectors, the sale of commercial vehicles and cargo handled at major ports, registered growth rates of 5.7 percent and 4.7 percent respectively in Q4 of 2016-17.
The 'agriculture, forestry and fishing' sector has shown a growth rate of 9.0 percent at current prices. The GVA estimates of this sector have been compiled using the Third Advance Estimates of production of food grains for 2016-17.
The third advance estimates of food grain production was 273.38 million tonnes in 2016-17 which is higher than the second advance estimates of food grain production during 2016-17 of 271.98 million tonnes and final estimates of 251.57 million tonnes during the agricultural year 2015-16.
The 'mining and quarrying' sector has shown a growth rate of 1.9 percent at current prices. As per the available information, private corporate sector growth in the mining sector as estimated from major listed companies at current prices was 1.8 percent.
The growth in the 'manufacturing' sector is estimated at 9.3 percent at current prices. The private corporate sector growth (which has a share of around 70 percent in the manufacturing sector) as estimated from available data of listed companies with BSE and NSE was 12.4 percent at current prices during 2016-17.
The quasi corporate and unorganised segment (which includes individual proprietorship and partnerships and khadi and village Industries having a share of around 23 percent in the manufacturing sector) has been estimated using IIP of manufacturing.(ANI)

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