A day after gross domestic product (GDP) growth data for the December quarter came in, showing growth at 7% and surprising analysts, finance minister Arun Jaitley hit back at critics of the government’s demonetisation move. The data belies the exaggerated claims made by many that the rural and farm sectors were in distress, Jaitley said on Wednesday.

ALSO READ | What explains 7% GDP growth despite Modi’s demonetisation drive?

After the government invalidated high-value currency notes on 8 November, several analysts and economists predicted a sharp fall in India’s GDP growth rate in the fiscal third quarter.

Still, many commercial banks, including State Bank of India, and brokerages say the December GDP growth number was unnaturally high and could be revised down.

STATE BANK OF INDIA: ‘TOO GOOD TO BE TRUE’

The country’s largest lender said there had been a sharp downward revision of GDP numbers for the third quarter of the last financial year, resulting in higher growth in the third quarter of 2016-17, and “masking the impact of demonetisation". “Even then it seems implausible that the positive effect of downward revision in previous year is strong enough to overpower the negative effect of demonetisation in Q3 FY17," SBI added.

EDELWEISS SECURITIES LTD: ‘COULD BE DUE TO INVENTORY BUILD-UP’

The securities house said that what was particularly striking in the GDP data was a sharp pick-up in the manufacturing sector and steep acceleration in real private consumption. “This is surprising as several high frequency indicators, such as fast moving consumer goods sales, car sales, two-wheeler sales, and credit growth slowed during the quarter, but perhaps manufacturing strength could be due to inventory build-up," it said.

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STANDARD CHARTERED BANK: ‘RESILIENT GDP DATA MASKS REALITY’

The bank said that gross value added (GVA) is a better indicator of economic health than GDP, and that this slowed in the December quarter in line with expectations. “If we strip out government expenditure from non-agricultural-sector GVA, it slowed to 5.8% in Q3-FY17 from 6.4% in Q2, indicating that private-sector activity was negatively impacted by the demonetisation exercise." it said.

KOTAK INSTITUTIONAL EQUITIES: ‘DATA COVERAGE IS INCOMPLETE’

The brokerage said that while GDP data showed limited impact of demonetisation, the data coverage was not holistic. “ Specifically, the cash-sensitive unorganized/SME (small and medium enterprises) segment is still not covered," it said.

AXIS CAPITAL: ‘MARKETS LIKELY TO BE SCEPTICAL’

The investment bank said advancement of festive purchases and limited data capture of the unorganized sector (which was affected the most by demonetisation) have probably propped up recorded GDP growth. “Markets are likely to approach this print with scepticism, but better data following revisions in January 2018 can provide more clarity," it added.

YES BANK: ‘ONLY PARTLY REFLECTIVE’

The bank said the GDP estimate had surprised significantly on the upside but that “several underlying questions aside, it is likely that this estimate is only partially reflective of the demonetisation impact as it is mainly based on indicators of the organized sector. Going further, the third provisional estimate due on May 31 will reveal the bulk of the impact."

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NOMURA GROUP: ‘DOESN’T ADD UP’

The Japanese securities house said the data does not add up. It pointed to high-frequency real activity data released since demonetisation which suggested that consumption and services were hit because they are more cash-intensive. Nomura believes the discrepancy could be due to the inability of official statistics to capture the negative growth effects on the unorganized sectors; positive base effects created by upward revision in the fourth quarter of 2015 GDP growth; and companies showing their cash in hand as sales.

EMKAY GLOBAL FINANCIAL SERVICES: ‘THE BASE EFFECT’

The broking house said the higher-than-expected GVA of 6.6% year-on-year is attributable to lowering of the 2015-16 third quarter number. On an unchanged base it would be at 6.2% year-on-year, closer to the brokerage’s estimate of 6.3%.

RELIGARE CAPITAL MARKETS: ‘EXPECT A REVISION’

The securities firm said it expects a downward revision in GVA going ahead. According to Religare, agriculture and public administration cushioned the impact of demonetisation in the third quarter of the current fiscal year. “Excluding these two segments, GVA growth dropped to 5.8% in the December quarter from 6.9% in the first half of fiscal year 2017 and 9.3% in fiscal year 2016, somewhat reflecting the impact of demonetisation."

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