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Construction sector performed particularly poorly during Q4FY17: Panagariya

Market is recognising reforms govt is undertaking, says Niti Aayog Vice-Chairman Arvind Panagariya

Ishan Bakshi & Sanjeeb Mukherjee 

Vice Chairman, NITI Aayog, Arvind Panagariya
Vice Chairman, NITI Aayog, Arvind Panagariya

The revised estimates of gross domestic product (GDP), released by the (CSO) on Wednesday, showed that the economy slowed down to 6.1 per cent in the fourth quarter of 2016-17, from 7.9 per cent in the first quarter. Ishan Bakshi & Sanjeeb Mukherjee spoke to Vice-Chairman to understand the implications of the latest estimates, and the state of the economy. Edited excerpts:  

The CSO’s revised estimates show that growth slowed down to 6.1 per cent in the fourth quarter. Are we now seeing the actual impact of demonetisation?

First of all, let me say that the growth rate for the full year 2016-17 has been 7.1 per cent. This beats the pronouncements of all ‘messiahs of doom’ who were predicting a minimum drop of 2 percentage points in this figure on account of demonetisation. 

Indeed, the impact of demonetisation should have been felt the most in the third quarter and the figure for that quarter has held up. As for the fourth quarter, a key factor explaining 6.1 per cent growth is the high base due to very high growth in Q4 of 2015-16. The construction sector, which has been suffering from legacy issues, has performed particularly poorly during this quarter. 

The worry is that investment growth continues to be sluggish. What are your views?

Gross fixed capital formation at constant 2011-12 prices as a proportion of the has been 29.5 per cent in 2016-17. This is approximately one percentage point below that in 2015-16, but it is still a high figure. I am not especially worried about it at this point. We will see it turn up in the current year. 

What is your assessment of the state of the economy now? What is your estimate of growth going forward? 

I’m upbeat about the prospects of the economy. My bottom line prediction for FY18 is 7.5 per cent. Demonetisation is behind us and we are tackling NPAs (non-performing assets) head on now. In 2015-16, we touched 8 per cent.  So, my prediction, which nearly all had seen with great skepticism at the time, has come true. Even the growth rate for year 2014-15 has been revised to 7.5 per cent. So, I think we are poised to return to the 8 per cent plus growth trajectory. The market is recognising the reforms that the government is undertaking at fast pace and this is reflected in the upbeat mood. Foreign investment has touched all-time high at $60 billion in 2016-17. 

There has been much controversy over the new series. Now with the latest revisions, do you think the criticism will die down?

I have maintained all through that the changes the CSO made were an improvement over our past practice. The negative growth in the Wholesale Price Index (WPI) had produced some anomalies, most notably unusually slow growth in the deflator, which misled many observers into believing that something was wrong with the new methodology. Now that the WPI is back in the normal territory, skepticism is dying down.

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