New Delhi: India’s economic growth slowed for the fourth consecutive quarter in the three months ended March, mirroring the impact of demonetisation on key sectors including construction and financial services.

Gross domestic product (GDP) growth slowed to 6.1% in the fiscal fourth quarter from 7% in the third, according to data released by the government on Wednesday.

The slowdown may put pressure on the Reserve Bank of India, whose monetary policy committee meets next week, to cut policy rates to balance its inflation-targeting focus with the need to stimulate economic growth.

Real gross value added (GVA), another measure of economic activity that is arrived at by excluding net indirect taxes from GDP, slowed to a growth pace of 5.6% in the March quarter, also the fourth consecutive quarterly decline.

The Central Statistics Office maintained its earlier full-year growth estimate for 2016-17 at 7.1% on top of revised 8% growth in the previous financial year.

The growth numbers reflected the lingering effects in the March quarter of the government’s demonetisation of high-value banknotes with effect from 9 November, which triggered a cash crunch and disrupted business, especially in the unorganized sector. The labour-intensive construction sector contracted as a result of the cash shortage and regulatory changes, and financial services grew at an anaemic single-digit pace.

The distinct downtrend in GDP growth over the four quarters of FY17 suggests that the slowdown in growth that had already set in had been intensified by the note ban, said Aditi Nayar, principal economist at rating company ICRA Ltd.

“Demand and purchases during the festive season and a favourable base effect appear to have couched the impact of the note ban on consumption growth in Q3 FY17, which was followed by a sharp dip in Q4 FY17," she added.

Fiscal fourth-quarter growth in the $2.3 trillion Indian economy, the third largest in Asia, trailed the 6.9% pace at which China grew in January-March, putting it at the risk of losing its status as the world’s fastest expanding major economy.

India’s per capita income in real terms in 2016-17 also slowed to a growth pace of 5.7% to Rs82,296 ($1,276) against 6.8% growth last year.

Chief economic adviser Arvind Subramanian said the fourth quarter numbers had been expected to reflect the biggest impact of demonetisation.

“We can see some signs of bottoming out on account of the remonetization, and recovery in the nominal aggregates which picked up in the fourth quarter shows that," he added.

The construction sector shrank 3.7% in the March quarter, compared with a 3.4% growth in the preceding quarter. The announcement that a real estate regulator will be appointed to ensure higher accountability in the sector may have also contributed to the slowdown.

Mining picked up to grow 6.4% and so did public expenditure, rising 17%. Agriculture output growth slowed but stayed robust at 5.2% and financial services grew by just 2.2%. The manufacturing sector (5.3%) as well as trade, hotels and transportation (6.5%) also slowed from their levels in the preceding quarter.

Excluding agriculture and public expenditure, core GVA grew 3.8% in the fourth quarter, revealing the deeper impact of demonetisation and suggesting that economic activity would have been much slower without a substantial push in public expenditure.

Growth in gross fixed capital formation, which is a proxy for investment demand in the economy, slowed sharply in FY17 to 2.4% from 6.5% a year ago. Private final consumption grew 8.7% in FY17 against 6.1% a year ago.

The statistics department also revised GDP data since 2012-13, incorporating the new wholesale price index and index of industrial production series which showed the economy grew marginally faster in 2014-15 and 2015-16 than earlier thought.

Credit rating agency Moody’s Investors Service on Wednesday projected India’s economy to accelerate to grow at 7.5% in 2017-18 and 7.7% in 2018-19 as the government has been able to limit the negative impact of last year’s demonetisation on the economy.

The World Bank also expects the Indian economy to grow at 7.2% in FY18 and gradually gather pace to touch 7.7% by FY20, a year later than Moody’s projection.

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