ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Growth Falls

Slower growth in the last two quarters of 2016–17 confirms the damage caused by demonetisation. 

In February 2017, the Central Statistics Office (CSO) announced that gross domestic product (GDP) growth was 7% for the third quarter (October–December) of 2016–17, and 7.1% for the financial year. Prime Minister Narendra Modi took that opportunity to ridicule “those who come from Harvard” for their critical observations on the adverse consequences of demonetisation on growth. At different public rallies, Modi had specifically referred to Manmohan Singh’s observation in Parliament of a possible 2 percentage point reduction in GDP growth, and also alluded to Amartya Sen’s assertion that demonetisation would have adverse effects on the informal economy. Modi said that “their lies have been exposed.” This was despite government statisticians stating that the third quarter data could not as yet account for the effects of demonetisation. The latest CSO growth estimates released on 31 May show slower growth in the third and fourth quarters of 2016–17, confirming the negative impact of demonetisation on the economy and exposing Modi’s “lies.”

While the third quarter growth fell by 0.6 percentage points to 6.7% compared to the third quarter of 2015–16, in the fourth quarter it fell by as much as 3.1 percentage points, from 8.7% to 5.6%. This is the lowest fourth quarter growth since 2013–14 when the economy grew by 5.3%. The latter is an unrevised figure, and if allowance is made for the revised Index of Industrial Production (IIP) and Wholesale Price Index (WPI), growth in the fourth quarter of 2013–14 would be higher, making the latest fourth quarter growth the lowest since the new series began six years ago in 2011–12. Even in terms of fiscal years, gross value added (GVA) growth of 6.6% during 2016–17, a 1.3 percentage point fall from the previous year, turns out to be the lowest since 2012–13. The GDP growth for the latest year is 7.1% and appears higher because of the incremental contribution of 12.8% in the form of net indirect taxes in real terms, which would never have been the case in the national accounts parlance of the old national income series.

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Updated On : 27th Aug, 2017

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