Ever since the Second Advanced Estimates of National Income for 2016-17 were released at end-February, projecting gross domestic product (GDP) growth of 7.1 per cent, there have been numerous statements by government spokesmen pointing to the limited adverse impact of demonetisation and confidently expecting GDP growth in the order of 7.5 per cent or higher in 2017-18. There has also been a subtext that the Indian economy is back on a sustainable, medium-term growth path of 7-8 per cent. Is this really so?
Several analysts (such as Sudipto Mundle in Mint, March 17, 2017 and Indira Rajaraman in Mint, April 7, 2017) have pointed out that in the early assessments of national income by the Central Statistical Organisation (CSO), the estimates of gross value added (GVA) at basic prices, built up from the sectoral side, are substantially more reliable than those of GDP at market prices from the side of broad expenditure categories. They note that growth of GVA is officially estimated to decline to 6.7 per cent in 2016-17 from 7.8 per cent in 2015-16. Furthermore, if one separates out the sectors relatively insensitive to demonetisation (such as agriculture, utilities and public services) and focuses on those sectors (industry and other services) where the impact of demonetisation was expected to be significant, then even the official data show marked slowdown of value-added growth. Thus, Dr Mundle notes that growth of the latter category of “industry and other services” (accounting for about 70 per cent of GVA) slowed from 6.7 per cent in 2015-16 to 4.5 per cent in 2016-17.
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