India’s economy has grown about 7.1 percent although this figure does not take into account the impact of demonetization. (photo by Dibyangshu Sarkar/AFP/Getty Images)

NEW DELHI — The Indian economy is expected to grow at 7.1 percent this fiscal (without the impact of demonetization being taken into consideration), according to an official advance estimate for the year released Jan. 6.

The actual expansion in the first six months of 2016-17 stood at 7.1 percent.

The country's gross domestic product will grow at 7.1 percent in 2016-17 compared with 7.6 percent in 2015-16, according to the estimate of national income for 2016-17 released by the Central Statistics Office, even as industry called for a suitable union budget to stimulate investments and growth.

"The growth in deposits is an outlier, hence November data was not used for the financials," India's Chief Statistician T.C.A. Anant said, implying that demonetization is not a normal factor in the calculation of annual national income.

The CSO has primarily used seven-month data to extrapolate for the full fiscal. 

The anticipated growth of real GVA (gross value added, which excludes taxes and subsidies) in 2016-17 is 7 percent against 7.2 percent in 2015-16, said an official statement.

The GVA at basic prices for 2016-17 for manufacturing sector is estimated to grow by 7.4 percent as compared to growth of 9.3 percent in 2015-16.

The agriculture, forestry and fishing sector is likely to show a growth of 4.1 percent in its GVA during 2016-17 compared to the previous year's growth rate of 1.2 percent.

The estimated growth in GVA for financial, insurance, real estate and professional services sector during 2016-17 is placed at 9.0 percent as compared to 10.3 percent in 2015-16.

While announcing its monetary policy review last month, the Reserve Bank of India acknowledged the demonetization factor and lowered their GVA growth estimates for the current fiscal to 7.1 percent from the 7.6 percent forecast earlier. 

Prime Minister Narendra Modi announced the demonetization of Rs 1,000 and Rs 500 notes Nov. 8, saying the move was aimed to eliminate black money, counterfeit currency and terror financing.

The Nikkei Purchase Managers' Index survey released earlier this month showed that demonetization provoked a downturn both in Indian manufacturing and services growth in December. 

Besides, the output of India's eight infrastructure industries in November 2016 increased by 4.9 percent, but fell sequentially as compared to the 6.6 percent growth logged in October.

The GDP advance estimates have taken into account the data on industrial production till October, corporate results till the end  of September and the data on bank deposits and credits only till end of October.

"Because it is not an ordinary event, nobody's assessment is fact-based," the Chief Statistician said with reference to other estimates allowing for the depressive impact of demonetization.

He also said the CSO does not use indicators based on money supply in their computation of national income. 

Worryingly, the gross fixed capital formation (a monetary measure of activities like building of roads, schools and hospitals, investments in plant and machinery, and construction of ports, and railways assets) is estimated to fall to 29.1 percent of GDP from 31.2 percent last year.

"Gross fixed capital is an area of concern. Government will take necessary measures in that direction," Economic Affairs Secretary Shaktikanta Das told reporters here. 

Commenting on the data, industry chamber FICCI President Pankaj Patel said in a statement, "The data on gross fixed capital formation corroborates the weakness in investment activity. We look forward to reduction in tax rates and further policy push to support demand and investment in the upcoming Union Budget."

"As per the advance estimates, while there is an upsurge in the growth of public investment, this has yet to crowd in private investment which continues to be sluggish thereby stymying growth. CII looks forward to a growth-oriented Budget which would unleash a new wave of investments," Confederation of Indian Industry Director General Chandrajit Banerjee said in a statement.

Industry body Assocham said that further downward risks to the growth still prevail in the form of continuous fall in fixed investments and index of industrial production, unsolved problem of Indian banks' bad loans, emerging geo-political risks and the specter of financial market volatility.

"In addition to this, rising crude oil prices will have its adverse effects on current account deficit and exchange rate and unpredictability in the Indian economy due to recent policy stances and announcements on demonetization and other related factors could further adversely impact the GDP," it said.

Rating agency Crisil commented that the GDP figures released by CSO are likely to have an "upward bias" and the "primary reason for CSO's overestimate is the absence of sufficient information for the third quarter when the economy slowed due to demonetization.”

"Other indicators also suggest that growth prospects in the second half of the fiscal may be bleaker than what CSO has estimated." 

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