The government on Friday predicted robust economic growth in the fiscal year that ends in March, but without fully accounting for the disruption caused by Prime Minister Narendra Modi's decision to abolish high-value old currency bills. Gross domestic product (GDP) is estimated to achieve annual growth of 7.1 per cent in the current year, slower than a provisional figure of 7.6 per cent for 2015/16.
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The GDP estimate released today is a cornerstone of Finance Minister Arun Jaitley's Budget that's likely to be presented on February 1. But the Department of Statistics said the projection is largely based on data available by the end of October.
PM Modi's decision on November 8 to scrap Rs 500 and Rs 1,000 banknotes as part of a crackdown on tax evasion impelled a cash shortage that has not still been resolved.
Most private economists have pared their growth forecasts to 6.3-6.4 per cent for the next financial year that starts in April, citing the impact of demonetisation, which they reckon will linger for one more year.
"I am very worried with the projected growth rate," said Aneesh Srivastava, chief investment officer at IDBI Federal Life Insurance Co, to news agency Reuters. "Take demonetisation into account, the rate will substantially drop," he said, adding that he expected full-year growth to be well below 6.8 per cent.
Until last year, the government's statisticians would wait for GDP data for the quarter through December before putting out full-year estimates.
This year, that quarter's figures will not be available before the end of February, making the projection largely reliant on the economy's performance in the period before demonetisation, when consumer demand was strong.
The statistics office will release the data on February 28, along with revised full-year growth estimates.
The withdrawal of 86 per cent of cash out of circulation has disrupted supply chains at small, medium and even larger companies and left many customers short of cash.
The services industry shrank for a second straight month in December. Manufacturing activity plunged into contraction too. The cash crackdown has also hit capital investments.
New investment proposals slumped by nearly 61 per cent to $121.21 million a day between November 9 and December 31 from the period between October 1 and November 8, according to the think-tank CMIE.
