This Article is From Jan 31, 2017

Notes Ban May Drag Down This Year's GDP Growth To 4-Year Low: Economic Survey

Notes Ban May Drag Down This Year's GDP Growth To 4-Year Low: Economic Survey

The Indian economy expanded at 7.6% in 2015-16.

Highlights

  • GDP growth could fall below 7% in 2016-17, says Economic Survey
  • Notes ban has hit economic activity, the pre-Budget report card noted
  • India's GDP had grown at 6.9% in 2013-14
India's economic growth could fall below 7 per cent in the current fiscal year (2016-17) as the notes ban has hit economic activity, down from 7.6 per cent in the last financial year (2015-16), the government admitted today in its pre-Budget report card the Economic Survey. "It would be reasonable to conclude that real GDP and economic activity has been affected adversely, but temporarily, by demonetisation," the Survey said.

The Survey sees India's GDP growing between 6.5-.6.75 in the current fiscal - which will be the lowest in four years. "Given the uncertainty (after demonetisation), we provide a range: a 0.25 percentage point to 1 percentage point reduction in nominal GDP growth relative to the baseline of 11.25 per cent; and a 0.25 percentage point to 0.5 percentage point reduction in real GDP growth relative to the baseline of estimate of about 7 per cent," it said.

Last year's survey had pegged growth this year between 7 per cent and 7.5 per cent. After the notes ban, the International Monetary Fund had downgraded India's expected growth this year from 7.6 per cent to 6.6 per cent, which it said would make it lose the tag of the world's fastest growing economy to China.

Chief Economic Adviser Arvind Subramanian said the growth slowdown now projected challenges independent estimates of a far bigger impact. He also rejected the view of the IMF, where he used to work, that growth would be knocked a full percentage point lower by PM Modi's shock decision in November to scrap 86 per cent of the cash in circulation and said the currency squeeze was "less severe than is commonly perceived".

The Economic Survey tabled in Parliament today said growth slowed as demonetisation reduced demand and supply and increased uncertainty. The Indian economy expanded at 7.6 per cent in 2015-16 and at 7.2 per cent in 2014-15.Prior to that, India's GDP grew at 6.9 per cent in 2013-14 and 5.1 per cent in 2012-13.

The Survey was however optimistic on growth prospects in the future. "Over the medium run, the implementation of GST, follow-up to demonetisation and other structural reform measures should take the trend rate of growth of the economy to the 8-10 per cent range that India needs," the Survey said. 

For next year (2017-18), the Economic Survey projects a growth rate of 6.75 per cent and 7.5 per cent in the financial year beginning on April 1. 

The growth projection comes a day before Finance Minister Arun Jaitley is due to unveil its Budget for 2017-18. Economists expect the finance minister to announce tax cuts as well as higher spending to lift economic growth.
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