New Delhi: Belying grim forecasts inspired by the impact of demonetization, India’s economy grew at a healthy 7% in the fiscal third quarter.

Analysts polled by Reuters had expected a 6.4% growth rate in the quarter to December.

The pace of growth did, however, slow from the growth of 7.4% logged in the second quarter of the fiscal year.

The Central Statistics Office (CSO) retained its projection that the economy will grow 7.1% in 2016-17, slowing from 7.6% in the previous financial year.

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More importantly, the 7.1% GDP growth rate was retained over a higher base in 2015-16. On 1 February, CSO revised the 2015-16 GDP growth number to 7.9% from 7.6% estimated earlier.

The first advance estimate of GDP growth was released a month before it was due to help the government prepare the budget, whose presentation was advanced by a month to 1 February.

Except construction (2.7%), and financial and real estate (3.1%) sectors, all other sectors grew at a faster pace in the third quarter compared with the preceding quarter.

The first and second quarter GDP growth estimates were also revised upward by 10 basis points to 7.2% and 7.4% respectively. One basis point is one-hundredth of a percentage point.

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Prime Minister Narendra Modi on 8 November invalidated Rs500 and Rs1,000 currency notes, which made up 86% of the currency in circulation by value, as part of his government’s fight against black money.

The currency crunch that followed the demonetization of high-value notes was widely believed to have impacted consumption, driving down economic growth.

The CSO data showed that private final consumption picked up in the third quarter to grow 10.1% against 5.1% in the second quarter. While manufacturing was expected to be hit due to falling consumption demand, it grew 8.3% in Q3 against 6.9% in Q2.

The latest GDP data belies widespread expectations of sub-7.0% growth this fiscal year, said Didar Singh, secretary general at the industry lobby group Federation of Indian Chambers of Commerce and Industry. “The process of remonetization is complete and we see the economy getting back on track," he added.

Economic affairs secretary Shaktikanta Das claimed the impact of demonetization had been over-stated. “As we see from the numbers, manufacturing growth at 8.3% is very satisfying and it is a very promising number," he added.

Aditi Nayar, principal economist at rating company Icra Ltd, said since the early estimates of quarterly GDP rely heavily on available data from the formal sector, the Q3 GDP growth may not be fully capturing the impact of the note ban.

“Subsequent estimates that draw from wider data sources, may well revise Q3 FY2017 growth downward," she added.

The International Monetary Fund (IMF), in a report released last week, said India’s economic growth is expected to slow to about 6% in the second half (October-March) of fiscal 2016-17, before gradually rebounding in the course of 2017-18. In the first half (April-September) of FY17, the economy grew 7.2%.

In its update to the World Economic Outlook released in October, IMF said India is likely to grow 6.6% in 2016-17, against its earlier estimate of 7.6%.

Prerna Kapoor contributed to this story.

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