CSO pegs growth at 7.1%, skirts note ban impact

Advance Estimates peg GDP growth at 7.1%; forecast based on datasets mostly up to Oct

The Central Statistics Office (CSO) projected India’s economic growth at an optimistic 7.1 per cent in 2016-17, lower than 7.6 per cent in the previous financial year.

Economists expect a significant downward revision in the number once data for the months after November is made available. However, the finance ministry said the estimates are based on ‘real statistics’ and not ‘anecdotal evidence’.

The forecast does not take into account the full impact of demonetisation, with projections based on some datasets up to October. The government will release the revised second Advance Estimates for 2016-17 and the quarter ended December on February 28.  

Gross domestic product growth (GDP) in the second half of the financial year is forecast to slow down to seven per cent from 7.2 per cent in April-September, Advance Estimates released by the CSO showed on Friday. If the overestimation concerns hold true, they are likely to affect Budget assumptions. The Budget has been advanced by a month to February 1.  

“The GDP estimate does not factor in the note ban. Detailed information for most indicators is available up to October. The impact of demonetisation is yet to be understood and could last for several years,” said T C A Anant, chief statistician of India.

“Being a statistical organisation, the CSO has to go on real statistics and we cannot expect them to go on the basis of impressions and anecdotal evidence,” Economic Affairs Secretary Shaktikanta Das said.

GDP growth essentially seems to be driven by a sharp rise in government spending and agriculture. The CSO has projected a sharp slowdown in manufacturing growth in the second half of 2016-17 to 6.7 per cent from 8.1 per cent in April-September.

Manufacturing, a focus area for the government, has been estimated to slow down to a growth rate of 7.4 per cent in 2016-17 from 9.3 per cent in the previous financial year.  Industrial growth as a whole, including mining, manufacturing and electricity, is estimated to slow down to 5.2 per cent during 2016-17 from 7.4 per cent in the previous year.

The Advance Estimates are based on industrial production and bank deposit data available till October and a clutch of other data points, including inflation, government expenditure and subsidies up to November.

“The surge in bank deposits was an outlier, hence, November data was not used to compute financial services data. There was a high degree of volatility in November bank deposit data due to cash curbs,” said Anant.

Growth during the October-December quarter is expected to be the weakest in years, with spending affected by currency curbs. There have been reports of static industrial activity and low winter sowing. The purchasing managers’ index for services put out by Nikkei contracted in November and December due to demonetisation.

Public administration, defence and other services, largely government spending, are projected to grow 12.8 per cent in 2016-17, about double of the 6.6 per cent rate of the previous year. 

Agriculture is estimated to expand by 4.1 per cent in 2016-17, up from 1.2 per cent a year ago.

Gross fixed capital formation is estimated to contract by 0.2 per cent in 2016-17, against a 3.9 expansion in the previous financial year. Lending rates have begun to decline with banks flush with deposits after the currency ban.

Consumption, the bright spot in the first half of 2016-17, appears to dwindle. Private final consumption expenditure has been estimated to grow by 6.5 per cent during the financial year, lower than 7.1 per cent in the first half.