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GDP estimates out today: Why note ban might not have an impact

The advance gross domestic product (GDP) data to be released by the Central Statistics Office (CSO) on Friday might paint a rosy picture of the state of economy of the country than it really is – one of the reasons being that the data is available until the month of October – before Prime Minister Narendra Modi announced “demonetisation” on November 8.

business Updated: Jan 06, 2017 11:14 IST
Sunny Sen
India's advance GDP estimates will be announced today.
India's advance GDP estimates will be announced today.(Reuters)

The advance gross domestic product (GDP) data to be released by the Central Statistics Office (CSO) on Friday might paint a rosy picture of the state of economy of the country than it really is – one of the reasons being that the data is available until the month of October – before Prime Minister Narendra Modi announced “demonetisation” on November 8.

The advance GDP data usually is given out in the first week of February, once the data of the October-to-December quarter is out. This time, advancement of the Union Budget caused an early release of the GDP data.

GDP is the total value of goods and services produced by a nation, and in December economists hinted that demonetisation – which sucked out 86% of the country’s cash – could cause a one to two percentage point dip in GDP.

The only data that the CSO has is agricultural data, which would include the rabi crop sowing and production of kharif crops. However, important data of non-agricultural sectors is not available. Data of Index Industrial Production is also available until October. The only way to do so is some sort of extrapolation.

While the country is still struggling with inadequate cash, and withdrawal limits at banks and ATMs prevail, the economy of the country will take a couple of percentage points hit, according to experts. That might also result in China overtaking India as the world’s fastest growing economy, impacting foreign investments – one of the biggest thrusts of the Modi-led government.

A recent report by HSBC,pegged the October-to-Decemeber growth at 5% compared to its earlier growth of 7%. The impact of demonetisation is to continue as the report forecasted 6% growth in the January-to-March quarter.

However, some financial institutions remain bullish on India’s long-term growth story. “The government’s plans to lower borrowings in Jan-Feb17 underscores their optimism on this year’s fiscal math. This is not without reason. Despite the recent demonetisation drive and potential delay in the rollout of the goods and services tax (GST), the FY17 fiscal deficit target of -3.5% of GDP is likely to be met,” Singaporean multinational banking and financial services corporation, DBS, wrote in a report on Wednesday.