The effect of demonetisation is now being reflected in the economic data with the gross domestic product (GDP) growth reported at 6.1 per cent during the fourth quarter ending March. The national income data released on 31 May, however, retained its estimate GDP growth at 7.1 per cent for FY 2016-17.

The GDP numbers have been reworked on the basis of the new data series that includes many more items and is based on the price level prevailing on 2011-12. 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 per cent.

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On falling GDP growth, Chief Statistician TCA Anant said policies like demonetisation cannot be concretely tied to one figure and the economy is still dynamic. “Analysis of policies like demonetisation and impact on GDP data can be termed as a post-hoc analysis. Impact analysis of policy is a complex analysis in econometrics. It is not a simple before and after argument. Economic indicators cannot be based on a particular event,” he said.

He added, “Our economy is growing reasonably well. But the rate of capital formation is still below 30 per cent and we want that to increase further.”

Earlier this month, the government released new sets of IIP and WPI data changing the base year to 2011-12 from 2004-05. It also added new categories of goods and changed weights to bring the two indices more in tune with current consumption trends.

Aditi Nayar, principal economist at ICRA rating agency, said, “The GDP growth for Q1 FY2017 has been revised upward sharply to 7.9 per cent from 7.2 per cent. As a consequence, GDP growth has displayed a downtrend over the quarters of FY 2017, from 7.9 per cent in Q1 to 7.5 per cent in Q2 to 7.0 per cent in Q3 and further to 6.1 per cent in Q4. The distinct downtrend in GDP growth over the quarters of FY 2017 suggests that the slowdown in growth that had already set, was intensified by the note ban.”

Almost all sectors, with the exception of agriculture, showed deceleration in the aftermath of demonetisation.

In the March quarter, agriculture, forestry and fishing sectors grew at 5.2 per cent; mining and quarrying at 6.4 per cent; manufacturing at 5.3 per cent; electricity, gas, water supply and other utility services at 6.1 per cent; trade, hotels, transport and communication at 6.5 per cent; financial, real estate and professional services at 2.2 per cent; and public administration, defence and other services at 17 per cent. However, the construction sector shrank 3.7 per cent.

Devendra Kumar Pant, chief economist, India Ratings and Research, said: “The impact of demonetisation is clearly visible in fourth quarter GVA growth of manufacturing (declined to 5.3 per cent from 8.2 per cent in third quarter) and trade hotels, transport & communication and services related to broadcasting (declined to 6.5 per cent from 8.3 per cent in third quarter). While banks were flush with funds due to subdued credit offtake, GVA growth of financial, real estate and professional services also declined.”

Gaurav Dua, head of research at Sharekhan, said, “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.”