Improved estimate in net indirect taxes helped maintain GDP, says CSO.

The Central Statistics Office (CSO) has kept its January estimate for growth in gross domestic product (GDP) in 2016-17 unchanged at 7.1%, signalling that independent economic forecasters may have overstated the drag on the economy from the November withdrawal of high-value currency notes.

The CSO, which released its second advance estimates of economic growth on Tuesday, also provided GDP and Gross Value Added (GVA) figures for the third quarter, which showed GDP growth slowing to 7%, from 7.3% in the second quarter of the financial year.

‘A pleasant surprise’

“The GDP numbers are definitely a surprise, but a pleasant surprise,” said Madan Sabnavis, Chief Economist at Care Ratings. “Since the CSO has not revised downward the annual estimate, we can expect that there should not be further changes on account of demonetisation. The numbers are vindication that demonetisation didn’t have a major impact on the economy. They have looked at all the numbers at their disposal and have come out with their estimate.”

The official figures peg GVA growth for the full year at 6.7% as against the 7% projected in the first advance estimates. For Q3, the GVA growth rate is estimated at 6.6%, down from the 7.1% reported in Q2. The CSO also revised downward the GVA growth rates for the first two quarters to 6.9% in Q1 and 6.7% in Q2, from the 7.3% and 7.1% reported earlier.

“The reason why GDP has maintained is because the reduction in GVA has been compensated for by an improved estimate in net indirect taxes,” Chief Statistician of India TCA Anant said at a press conference.

The Election Commission had barred CSO from releasing State-specific data on economic growth projections, in view of the ongoing Assembly elections.

The Commission gave a clearance to the release of only national level data.

Commenting on the latest data, Economic Affairs Secretary Shaktikanta Das said the GDP numbers negated the “negative speculation on demonetisation.” “There was an overestimation about the impact of demonetisation by some,” he said.

“The revised estimates of subsidies are now available and they show a much tighter compression than was provided for in the Budget Estimates,” Mr. Anant said. “Subsidies show a negative growth and indirect tax collections showed positive growth, so GDP growth has remained the same.”

Sectoral growth

The second advance estimates show the agriculture sector faring better than estimated in January with growth at 4.4%, compared with the first advance estimates which had predicted a growth of 4.1% for the sector. Similarly, mining and quarrying is now expected to expand at 1.3% in 2016-17, instead of the January prediction of a contraction of 1.8%.

The second advance estimates peg manufacturing growth for the full year at 7.7% compared with 7.4% predicted by the first advance estimates.

“The advance estimates of agricultural growth now show a higher growth than they had shown earlier,” Mr. Anant said.

“They are projecting a 9.9% growth for kharif crops as against 8.9%. In mining and quarrying, IIP for April-December was 0.9% as opposed to a contraction of 0.2% in April-October, which was used in the first advance estimates. Manufacturing grew 0.5% in April-December as opposed to a contraction of 0.1% in April-October.”