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GDP rises to 7.3% in Q2, but analysts say demonetisation impact will show later

The step to denotify Rs 500 and Rs 1,000 notes will slow down growth in the coming quarters, experts said.

India’s gross domestic product rose to 7.3% in the July-September quarter from 7.1 per cent in the previous quarter, data released on Wednesday revealed. According to analysts, the implementation of the Seventh Pay Commission ushered in the dividends in the second quarter. It boosted domestic demand and improved the GDP for this quarter.

The data for the September quarter, however, does not reflect the impact of demonetisation. Experts warned that the surprise move may affect the GDP and this will show coming quarters. According to them, the step to denotify Rs 500 and Rs 1,000 notes will slow down growth and thus the overall GDP for the financial year 2016-2017 will also come down. Experts from the Centre For Monitoring Indian Economy Private Limited told NDTV that the demonetisation will cost around $19 billion (Rs 126,000 crore approximately) in the form of wages, lost business and higher administrative expenses.

Ever since the demonetisation move, many financial firms have revised their GDP growth predictions for India. The Fitch Ratings lowered India’s GDP growth forecast to 6.9% from 7.4% for the financial year 2016-2017 amid the cash crunch the country is facing. Ambit Capital, on the other hand, estimates it at 3.5%.

Though the GDP growth rate does not reveal the impact of demonetisation, data on the purchasing managers’ index, which will be released on Thursday, will be the first assessment of the move and its impact on the manufacturing sector, reported Economic Times. The manufacturing growth had come down to 7.1% in September quarter from 9.1% in the previous quarter.

Besides, people are also eagerly waiting for the Reserve Bank of India’s policy review meet on December 7. According to Citigroup Inc, RBI Governor Urjit Patel will probably reduce the benchmark repo rate to 6% from 6.25%. “In an uncertain economic environment since the demonetisation exercise, the December monetary policy has to focus on a prudent risk management approach rather than a simple growth-inflation trade-off,” the Economic Times quoted Citigroup economists Samiran Chakraborty and Anurag Jha as saying.

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This article was produced by the Scroll marketing team on behalf of Teamwork Arts and not by the Scroll editorial team.