Demonetisation likely to pull down India's growth further

India Inc said policymakers should take doable steps to revive fixed investments and production of capital goods

With India's GDP growth expected to slow down to 7.1 per cent during 2016-17 from 7.6 per cent in the previous fiscal, India Inc today said further downward risks to growth prevail as demonetisation may pull down economic growth in the next one or two quarters.

India's GDP growth is expected to slow down to 7.1 per cent in the current fiscal mainly due to slump in manufacturing, mining and construction activities in figures which do not take into account the possible impact of demonetisation.

Given the current scenario, India Inc is pinning hopes on a growth-oriented Budget to unleash investments and set the pace for economic growth of 8 per cent and above in the near future.

Finance Minister Arun Jaitley will present the Budget for 2017-18 on February 1.

The industry said policymakers should take doable steps to revive fixed investments and production of capital goods which are falling continuously, and urged the government to unveil policy initiatives to unclog the cash flows in large projects.

The 'First Advance Estimates of National Income, 2016-17' released by the Central Statistics Organisation (CSO) do not reflect the impact of demonetisation, effective from November 9, 2016 because the estimates are based on sectoral data available till October.

"No doubt, the demonetisation drive is anticipated to result in a downward bias to GDP growth in the next one or two quarters, but this is likely to be a blip in the growth momentum as demand has only been deferred and will re-emerge once the situation becomes normal.

"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 director general Chandrajit Banerjee said.

Industry body Assocham said further downward risks to growth still prevail in the form of continuous fall in fixed investments and index of industrial production, unsolved problem of bank NPAs in India, political risks in the euro area and the UK, emerging geo-political risks and the spectre of financial market volatility.

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

Real Gross Domestic Product (GDP) at constant (2011-12) prices in the year 2016-17 is likely to attain a level of Rs 121.55 lakh crore, as against the Provisional Estimate of GDP for 2015-16 of Rs 113.50 lakh crore, released May 31, 2016.

The CSO projections on national income are in line with the Reserve Bank's estimates, which too had lowered the GDP growth prospects to 7.1 per cent.

Besides, growth in manufacturing is expected to slow to 7.4 per cent (from 9.3 per cent) and construction activities to 2.9 per cent (from 3.9 per cent).

Photograph: PTI Photo