New Delhi: The Indian economy is expected to expand at 7.1% this financial year after factoring in the impact of demonetisation, the Central Statistics Office CSO ) said on Tuesday. Although this is slower than the 7.9% growth registered in 2015-16, it gives the Narendra Modi government the firepower to defend its decision to scrap old Rs 500 and Rs 1,000 notes, which, according to critics, has been disastrous for the economy.During October-December 2016, CSO’s second advance estimates showed that GDP grew by 7%, compared to 7.4% in the previous quarter. It maintained the full year growth estimate at the same level (7.1%) as the first advance estimate released in early January, which had not factored in the impact of demonetisation.Opposition parties had said that demonetisation led to massive job losses as companies cut down on production and overall economic activity was disrupted post November 8, even as the government maintained the impact was temporary. While the RBI and the International Monetary Fund have cut growth estimates for the financial year by up to one percentage point, some agencies had predicted sub-6% rise in the December quarter. Those such as Ambit Capital went to the extent of projecting less than 4% growth during the year.Most companies reported a drop in demand during the December-quarter, but official estimates suggest that there was no impact as private final consumption expenditure as a proportion of GDP remained flat.The data did result in some elation in the government. “It is very satisfying to know that the overestimation that was done about the so-called negative impact of demonetisation is not there. Because we still remain 7%-plus growth country... The third quarter GDP numbers are out and, as you have seen, the numbers completely negate the kind of negative projections and speculations made about the impact of demonetisation,” economic affairs secretary Shaktikanta Das told reporters.Economists, however, pointed out that a revision in the rates for October-December 2015 may have helped improve the performance. “The steep downward revision of Q3 FY16 (October-December 2015) has in turn led to higher growth in Q3 FY17 October-December 2016), thus masking the impact of demonetisation in Q3 figures,” SBI group chief economic adviser Soumya Kanti Ghosh said in a note. “Overall, the GDP numbers seem to suggest we may have just leapfrogged the impact of demonetisation,” he added.The government agency has also marginally revised upwards the GDP estimates for the first and second quarters to 7.2% and 7.4%, respectively, indicating stronger economic activity in the first half.Growth during the year is expected to be powered by the farm sector, which has seen healthy sowing after a good monsoon. There is a significant slowdown in the mining sector, while manufacturing remains weak.Data, however, showed that investment in the economy worsened with gross fixed capital formation falling as a proportion of GDP.