Statsguru: Looking back - 2016 in review

The year began on a strong note. Gross Domestic Product (GDP) grew by 7.9% in the January to March quarter. 

Expectations of growth maintaining momentum gained traction. An increase in public sector investment was supposed to crowd in private investment, kick-starting the investment cycle. A good monsoon and proceeds from the 7th Pay commission would spur consumption in the second half of the year, or so it was hoped. 

But, as Chart 1 shows, growth sputtered to 7.1% in the April-June quarter, thereafter growing by 7.3%, way short of the Reserve Bank of India (RBI)’s expectations. Investment activity continued to show no signs of reviving. Gross fixed capital formation has contracted for three straight quarters. Industrial growth continued to disappoint as shown in Chart 2. 

Exports continued to contract during the first half of the year. While growth did perk up in September and October as seen in 

Chart 3, it slumped back to 2.3% in November.

Inflation though has moderated as seen in Chart 4. The headline consumer price index declined to 3.6% in November, on the back of moderating food prices. But, core inflation continues to be a source of concern. 

Despite the weakness in the economy, foreign investors continued to pour in billions as shown in Chart 5 and Chart 6. But, post demonetisation the trend reversed. Foreign institutional investors withdrew $3.5 billion. The Sensex fell five% as seen in Chart 7. As Chart 8 shows, the rupee also tanked, testing its historic limits. It is difficult to know for sure whether the effects of demonetisation will last two quarters or linger on. In the absence of data it is difficult to predict with certainty how 2017 will play out.