GDP growth estimates for 2016-17 downgraded

The government projections seem optimistic, given the oncoming effects of demonetisation

The Dollar Business Bureau  

According to recently released estimates by CSO (Central Statistics Office), GDP growth for FY 2016-17 is to drop to 7.1% from 7.6% in FY 2015-16. However, SBI research further pegs the estimate down to 6.7% for the whole year and 6.3% for the second half.  

While CSO did not take into account the effect of the note-ban in the month of November, SBI released its estimates with a downward bias to account for slowing consumption due to the cash crunch. The CSO growth projection was cut down owing to a slow down in the manufacturing, construction and mining sector, ignoring the volatility due to note ban.  

Caught in the vicious cycle of low spending and low reserves of new currency at banks, the new money is taking forever to come into circulation, causing stagnancy in consumption. India is set to see all-time lows in its consumer-spending this year.  

Manufacturing sector is expected to have a low growth rate of 7.4% in comparison to 9.3% in 2015-16. Agriculture and government spending will be major boosters during the year. Government spending, unencumbered by the demonetisation exercise is said to expand by 12.8 per cent in 2016-17, up from 6.6% in 2015-16. Growth in Agriculture increased from 1.2 per in 2015-16 year to 4.1 per cent in 2016-17.  

If the economy picks up during the next fiscal cycle, 2017-18 it could have the advantage of looking extra-ordinary when juxtaposed with a somewhat sluggish 2016-17. And that's the only silver lining to this cloud.  

The last two quarters of the year are likely to perform dismally in the wake of demonetisation, the full-blown effect of which has still not been realised. After steep downgrades in growth projections, India may have to bid farewell to the 'bright-spot on the world map' status it had in the earlier part of the year.  

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The Dollar Business Bureau - Jan 07, 2017 12:00 IST