The January-March GDP numbers that were released on Wednesday have proved development economist Jean Dreze right.
"Demonetisation in a booming economy is like shooting at the tyres of a racing car," Dreze had famously warned in an interview to The Economic Times.
India, which remained the fastest growing until December, has slowed down significantly in the fourth quarter with almost all the sectors of the industry witnessing a sharp decline in activity.
The economy, during the quarter, grew just 6.1 percent against 9 percent a year ago, as per the data. This is much lower than 6.9 percent registered by China.
For the full year, India's growth was 7.1 percent, which is also a three-year low.
A closer look at the figures reveals a much scarier picture - especially on the jobs front.
Here are seven graphics that brings forth the faultlines in the economy:
India-China GDP comparison
After a gap of two years India lost the fastest growing economy tag to China. For eight consecutive quarters, India’s GDP had raced past China's. India consistently posted a more than 7 percent growth in these eight quarters while China's economy had grown below 7 percent for the past seven consecutive quarters. The BJP leaders will have to hold back on fastest-growing-economy claim for some time, until the economy pulls back.
Q4 GDP growth The disappointing 6.1 percent growth number indicates that demonetisation-induced cash crunch has indeed taken a toll on the economic activity. As Aditi Nayar, principal economist, Icra said, “The distinct downtrend in GDP growth over the quarters of FY2017 suggests that the slowdown in growth 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.”
Sectoral show The disappointing growth outcome has been due to sluggish growth of several industry constituents. During the quarter, manufacturing growth stood at 5.3 percent, down sharply from 12.7 percent a year ago. Similarly, mining industry grew 6.4 percent as against 10.5 percent growth last year. While financial services industry saw a sluggish 2.2 percent growth versus 9 percent a year ago. Construction sector was the worst performer - a 3.7 percent contraction over 6 percent growth. Trade, hotels and transport industry grew 6.5 percent as against 12.8 percent a year ago. However, agriculture segment maintained its buoyancy, growing by 5.2 percent during the quarter compared with 1.5 percent last year. Even this was a moderation considering the sector had seen 6.9 percent growth in the previous quarter. By far the best show was by public administration and defence industry, both government-dominated - 17 percent rise over 6.7 percent growth a year ago.
This data indicates how badly demonetisation has hurt the households. Private consumption at constant prices, which indicates household expenditure, has declined to 7.3 percent from 11.8 percent. It is the government consumption expenditure which has shot up to 32 percent from a mere 2.4 percent, that saved the day for the government.
Full year GDP The full-year GDP growth came in at 7.1 percent in FY17, lower than revised 8 percent reading in the last financial year ending 2015-16. The break-up of gross value added showed that industry and services were badly hit while agriculture proved to be the saving grace. GVA growth of industry fell from 8.8 percent to 5.6 percent and services from 9.7 percent to 7.7 percent; agriculture growth jumped from 0.7 percent to 4.9 percent.
Per capita GDP
What does 7.1 percent GDP growth mean to the 130 crore people of the country? At least on the paper, per capita GDP at constant prices in fiscal 2017 has witnessed a 5.8 percent increase. However, that too is the lowest in past three years. Per capita GDP grew from Rs 88,706 in FY16 to Rs 93,840 in FY17 at constant prices while it rose from Rs 1,06,641 to Rs 1,16,888 in current prices.
Investment Among all the numbers, this is by far most important data point because it gives an indication on job creation. And the bad news is it paints a dismal picture. As per the data, gross fixed capital formation, or the corporate investment, has shrank 2.1 percent during the quarter. It is significant, given the prevailing jobs scare in the IT sector. As Upasna Bhardwaj, senior economist, at Kotak Mahindra Bank, told Reuters, "The biggest challenge is the lack of, or absence, of private investment given the kind of stressed balance sheet of corporates and alarmingly high NPAs (non-performing assets) of the banks." As of December, public sector banks have NPAs worth Rs 6.5 lakh crore on their books. Including the restructured loans, the total stress in the banking sector is estimated to be 11-12 percent of total loan book. This does not augur well for the investment scenario and, in turn, jobs. Varun Khandelwal, managing director, Bullero Capital, says paucity of jobs is the most significant imbalance in India's growth story. "The demographic 'dividend' is slowly turning into a 'tax' as more young people enter the workforce, while the pace of job creation is meagre," he told Reuters. Isn't it scary?
(With inputs from Rajesh Pandathil)
Updated Date: Jun 01, 2017 16:26 PM