India’s GDP growth is estimated to dip below 6 per cent in the third quarter and overall growth in 2016-17 is likely to be at 6.6 per cent due to demonetisation, though the economy would recover in long term with cash getting back into the system at a fast pace, a SBI report said.
“We expect GDP growth to be decisively lower than 6 per cent in Q3 at 5.8 per cent. In Q4 it could only make a gradual comeback to 6.4 per cent. We estimate FY17 growth at 6.6 per cent,” said the State Bank of India (SBI) Ecowrap report.
“We believe demonetisation will have short-term negative impact on growth numbers though in the long-run growth will increase as formalisation of economy increases and remonetisation happens at a faster pace,” said Soumya Kanti Ghosh, Chief Economic Adviser, Economic Research Department, SBI.
The Q3 estimates will be very critical as it covers the two month period of demonetisation and give us the glimpses of what happened in the economy during the months of November and December.
The good news is that 2017-18 growth could move up faster if demand comes back faster post remonetisation, he added.
Ghosh said that now the situation has almost normalised and close to 70 per cent of the extinguished currency will be remonetised by February-end.
The Central Statistical Organisation (CSO) had estimated GDP growth at 7.1 per cent in 2016-17 as compared to the growth rate of 7.9 per cent in 2015-16.
“If we go by current CSO estimate, the Q3 and Q4 GDP growth would be around 6.1 per cent and 7.8 per cent, respectively, which is quite impossible given the extent of liquidity shock that has led to a drastic consumer spending shock,” Ghosh said.
The Reserve Bank of India (RBI) on the other hand estimated GVA (gross value added, which excludes taxes and subsidies) growth for 2016-17 at 6.9 per cent, as against its earlier estimate of 7.6 per cent. Of the 70 basis points (bps) reduction, it attributed 35 bps to demonetisation and the rest 35 bps to base effect.
The CSO is going to release Q3 F17 GDP estimate on February 28.