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3 things to know about demonetisation and GDP data
A debate on “Demonetization: Good or bad for the economy” could go on forever if there were no numbers and statistics to back up the arguments. But with the recent data released by the Central Statistics Office (CSO), this debate can find some closure. In the past few months, economists have predicted that the Indian economy’s growth would falter after demonetization. However, the numbers indicate otherwise.
Here are three things to note:
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Surprising GDP numbers
Going against the popular consensus, India’s Gross Domestic Product (GDP) grew 7% in the quarter ended December 2016. This growth is slightly lesser than the average of 7.3% in the first half of the fiscal year. The data took everyone by surprise, including the International Monetary Fund (IMF). The IMF expected India’s economic growth to slow to 6% for the second half of the fiscal year 2016-17.
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Reasons for 'faster than expected' growth
Most of the other sectors grew at a much faster pace as compared to the previous quarter. For example, the manufacturing sector grew by 8.3% in the third quarter as compared to 6.9% in the second quarter, according to the CSO data. The agriculture sector registered a record output of food grains due to good rains, resulting in a 6% growth. The report also indicates that private consumption grew at double the pace compared to the previous quarter. And for the first time in four quarters, investments showed a positive growth.
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Agriculture and Government spending
In the last quarter, agriculture and government spending grew sharply. A 12% increase in government spending and 6% growth in the agriculture sector supported the growth in the economy in a big way. However, analysts say that there has been a slowdown in the private sector. This includes the financial sector, real estate, and construction. So, if the agriculture and public administration sector were excluded, the Gross Value Added (GVA) growth was 5.8% in the third quarter as compared to 7.4% and 6.1% in the first and second quarters respectively. This indicates a slowdown in economic activity according to experts. GVA is the measure of the total value of goods and services produced in an area, industry or sector of an economy. Higher the GVA, greater is the economic activity in the country.
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10.1%
The GDP data showed a sharp increase in the private consumption at 10.1% from 5.1% in the preceding quarter, a 17-month high. Private Consumption Expenditure (PCE) is the total expenditure incurred on consumption of goods and services by households. This measures the sale of Fast Moving Consumer Goods (FMCG), durables like TV sets and washing machines, automobiles, cement and steel. PCE is a very important metric in measuring the overall GDP growth in the country.
