New Delhi, November 30: India’s economy grew 7.3 per cent in the July-September quarter, that was the second quarter , which was 7.1 per cent in the previous quarter. But it is lower than the 7.5 per cent forecast by economists. However, this Q2 result does not reflect the effect of demonetisation which is expected to affect the GDP in a dramatic way.
India is still the world’s fastest growing major economy, but the question is can India hold that position post the demonetisation drive. In the second quarter, gross value added, which is another way to judge economic activity’s growth, rose 7.1 per cent.
In the agriculture sector, gross value added grew 3.3 per cent in the second quarter. In 2015, this was 1.8 per cent in the same quarter. For the manufacturing sector, the gross value added grew 7.1 per cent this quarter, It was 9.1 per cent last year.
There was no evidence of increase in the private investment cycle in the second quarter. At the same time, Gross fixed capital formation, which is an indicator that reflects investment in the economy, has contracted for three consecutive quarters. This quarter it has contracted by 5.6 per cent.
Demonetisation drive which has created major cash crunch in the economy is expected to have drastic effect on the growth of the economy in this quarter. Even if there is no proper figure to calculate the magnitude of demonetisation hitting economy, but most experts have kept their growth estimates’ expectations down for the current fiscal.
An optimistic forecast suggest that India will end this fiscal year with a growth rate of 7.3 per cent, which low but is considered respectable. But a Mumbai based brokerage firm came up with the estimate being as low as 3.5 per cent growth.
As consumers are spending less, small producers are worst affected and in a response to that they are forced to scale back their activities. Supply chains have reportedly broken down and many wholesale markets are shut.
The results of this fiscal quarter will be a greater judge if the demonetisation actually did some good or did more harm than good.