Jan-March GDP slows to 6.1%: Have no doubt, note ban is hitting hard; here's what experts say

India's economy grew 6.1 percent in the three months through March from a year earlier, slowing from a provisional 7 percent in the previous quarter, government data showed on Wednesday. That was much lower than the forecasts for annual growth of 7.1 percent in the January-March quarter reflected in a Reuters poll. Growth for the year ending in March came in at 7.1 percent, in line with the official estimate.

Here's what the experts have to say:

Devendra Kumar Pant, chief economist, India Ratings: FY17 GDP growth was marginally higher than India Ratings’ (Ind-Ra’s) estimate of 7 percent. GDP growth was supported by higher growth of net taxed on products (12.8 percent). However, GVA growth of 6.6 percent (Ind-Ra forecast: 6.9 percent) is lowest since FY15. The impact of demonetization is clearly visible in fourth quarter GVA growth of manufacturing (declined to 5.3 percent from 8.2 percent in third quarter) and trade hotels, transport and communication and services related to broadcasting (declined to 6.5 percent from 8.3 percent in third quarter). While banks were flushed with funds, due to subdued credit off-take, GVA growth of financial, real estate and professional services declined to 2.7 percent in second half of FY17 from 8.1 percent in first half of FY17. GVA growth too declined to 6.1 percent in second half of FY17 from 7.2 percent in first half of FY17.

On expenditure side, private final consumption expenditure and exports have provided support to FY17 GDP growth. Investment in fourth quarter contracted by 2.1 percent, it grew by 2.4 percent in FY17. Exports and government expenditure supported GDP growth in second half of FY17. GDP growth declined to 6.5 percent in second half of FY17 from 7.7 percent in first half of FY17.  After change in base year of IIP, base year of core infrastructure industries has also undergone a change to 2011-12 = 100. Other changes such as inclusion of renewable energy in electricity and weighting diagram are in line with changes in IIP. Core infrastructure growth in April 2017 was affected by base effect; April 2016 core sector growth was highest since December 2014. Only steel and electricity provided support to core sector growth. Going forward, the core sector growth is likely to remain lackluster unless support by government’s infrastructure sector and housing push.”

Aditi Nayar, principal economist, Icra: GDP growth for Q1 FY2017 has been revised upward sharply to 7.9 percent from 7.2 percent. As a consequence, GDP growth has displayed a downtrend over the quarters of FY2017, from 7.9 percent in Q1 to 7.5 percent in Q2 to 7.0 percent in Q3 and further to 6.1 percent in Q4. 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.



Radhika Rao, Group economist, DBS: Higher GVA (gross value added) base effects have played a part in the sharp slowdown in Q4 FY17 – as year before growth has been revised sharply up 8.7 percent. That aside, slowdown on GVA basis is disappointing, in continuation from the moderation since the first quarter of FY17's 7.1 percent. Suggests spillover slowdown from the December quarter's note ban, when growth had proved to be surprisingly resilient. Agriculture and public administration have been the main drivers of growth, barring which the momentum on the ground is soft – especially manufacturing, construction and financial services. On the expenditure end, the FY17 story line is similar to the previous year – consumption and government spending have been key pillars of support, while investment growth continues to lag. In this light, focus is next on how the RBI will interpret these numbers. There is a likelihood that the growth and inflation projections are tempered, providing the room for the policy guidance to soften next week.

A Prasanna, economist, ICICI Securities Primary Dealership:  The data for the full year was not too surprising except for the still wide gap between GVA (gross value added) and GDP. However the data for Q4 is quite shocking. While we agree that a slowdown in H2, concentrated in Q4, fits in with the theme of a slowdown post-November currency swap, the extent of slowdown is puzzling. Excluding agriculture and government spending, Q4 GVA expanded by just 3.8 percent y-o-y. Further the GDP deflator for Q4 has come in at 5.7 percent, which is clearly at odds with the WPI and CPI data for Q4. Overall, directionally this data is consistent with the other high frequency and macro data but the magnitudes are still questionable due to data issues. We expect the MPC (monetary policy committee) to reiterate the neutral stance but acknowledge balanced risks to inflation and tone down the hawkish noises that crept into the discourse in April.

Shubada Rao, chief economist, YES Bank: The lower-than-anticipated fourth quarter GDP number reflects the lingering impact of demonetisation. However, incremental data in April shows that growth impulse is improving and economic activity is picking up on the ground. We continue to expect the RBI to remain on pause, with any rate hikes ruled out. However the tone will be less hawkish given that both inflation and growth are lower than RBI's projection.

Tirthankar Patnaik, India strategist, Mizuho Bank: Q4 data is definitely disappointing and clearly reflects some amount of extreme impact from demonetisation. Based on the quarterly numbers, we can expect a strong commentary from the central bank in their next policy meet.

Upasana Bhardwaj, senior economist, Kotak Mahindra Bank: 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. "While policy efforts are being adequately made to tackle this, we still have a long way to go before problems get fully resolved. We expect a pause on rates but given RBI has been significantly way off the inflation trajectory, we expect a softer tone in the upcoming policy, rather than the extreme hawkish rhetoric we've seen.

Anjali Verma, economist, PhillipCapital India: It looks pretty tepid. GVA at 5.6 percent is weak, except for public administration and some bit on agriculture. Everything else is very, very weak. Manufacturing is pretty tepid, construction continues to remain very weak despite all the things the government has been saying. It's not looking good. The numbers are not at all good. "This data is closer to the ground reality than the previous ones. Going ahead, I think one key factor will be the banking sector. That's dragging growth substantially. I am surprised why there is still no growth coming in construction, but I think with housing impetus it should happen gradually.

Gaurav Dua, head of research, Sharekhan: The current GDP rate is much closer to ground reality, and it is likely to soften the Reserve Bank's hawkish stance on growth. Hence, I do not expect a rate hike by the RBI anytime soon. Neither do I see a rate cut in the next few months. The implementation of GST (goods and services tax) could have a short-term impact, which will reflect on the overall full-year GDP growth, but that is because of the roll out of GST and not because of the tax slabs.

Varun Khandelwal, managing director, Bullero Capital: Q4 GDP number was a bit disappointing.Since listed companies have reported a slowdown in their earnings for Q3 and Q4, I expect the data to be revised downwards. The most significant imbalance in India's growth story is the paucity of job creation. The demographic 'dividend' is slowly turning into a 'tax' as more young people enter the workforce, while the pace of job creation is meagre. It is critical that policy makers focus on a more equitable distribution of growth for the long-term socio-political stability of the country.

With inputs from Reuters

Updated Date: Jun 01, 2017 08:19 AM

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