Demonetisation impact: GDP growth slows to 6.1% in Q4, 7.1% in FY17

GDP grew a revised 8% in FY16; FY17 GVA at 6.6% vs 7.9% in FY16

Revision of the base year for index of industrial production (IIP) and the wholesale price index (WPI) failed to boost India's economic growth, which slowed down to a three-year low of 7.1%. Demonetisation move also had an impact on FY17 numbers. The growth was revised upwards to 8% for the previous year from 7.9% due to revision in the IIP and WPI series. 

If indirect taxes are taken out, the resultant gross value added (GVA) growth was just 6.6%, revised down from 6.7% in advance estimates as against 7.9% in FY16.

The impact of demonetisation was more discernible in the quarterly figures as GDP growth fell to  6.1% as against 7% in the third quarter. GVA grew by just 5.6% in the fourth quarter, the lowest figures in at least eight quarters. 

On GDP growth falling significantly in the last fiscal as compared to the year before, Chief Statistician TCA Anant said policies like demonetisation cannot be concretely tied to one figure and the economy is still dynamic.

"Q4 GDP number was a bit disappointing. Since listed companies have reported a slowdown in their earnings for Q3 and Q4, I expect the data to be revised downwards.

"The most significant imbalance in India's growth story is the paucity of job creation. The demographic 'dividend' is slowly turning into a 'tax' as more young people enter the workforce, while the pace of job creation is meagre. It is critical that policy makers focus on a more equitable distribution of growth for the long-term socio-political stability of the country," said Varun Khandelwal, managing director, Bullero Capital.

"The current GDP rate is much closer to ground reality, and it is likely to soften the Reserve Bank's hawkish stance on growth. Hence, I do not expect a rate hike by the RBI anytime soon. Neither do I see a rate cut in the next few months.

"The implementation of GST (goods and services tax) could have a short-term impact, which will reflect on the overall full-year GDP growth, but that is because of the rollout of GST and not because of the tax slabs," said Gaurav Dua, head of research, Sharekhan.