7.3% growth in GDP; good times ahead?

The Dollar Business Bureau

Yesterday the Ministry of Commerce released statistical figures of the Eight Core Industries included in the Index of Industrial Productivity (IIP). Of the 8 core industries, 5 seemed to have performed well. The combined index of the 8 industries stood at 188.1 in Oct 2016 which is an increase of 6.6% compared to that of Oct 2015.

It was also yesterday that the data released by the ministry of statistics and programme implementation showed that the GDP grew by 7.3% in the second quarter that ended in Sept. This is a slight increase than the 7.1% achieved in the previous quarter and much much stronger than that of China's 6.7%.

In other words, India is still in the race to prove that it is the fastest growing economy in the world. But economists and financial analysts are less enthusiastic about the future and say that the figures could drastically decline when the Oct-Dec quarter figure is released.

The after-effects of demonitisation in terms of numbers, are yet to be analysed as news from the remote parts of the country take the time to reach. But going by the figures and the market reaction to demonitisation, analysts estimate that growth over the next two-quarters could see a steep drop by as much as 1% or more. Fitch Ratings last week estimated that it could drop to 6.9% from 7.3% which didn’t come as a surprise given the cash crunch created due to the replacement and withdrawal of Rs.500 and Rs.1000 currency notes.

Fitch downsized the GDP growth forecast for 2017-18 and 2018-19 from 8% to 7.7%.

Those who are optimistic indicate that things could turn for the better if the Govt succeeds in bringing in ‘more black money’ than promised into the banking system which should result in a big bump in tax revenues. If the government comes up with better reforms, India can still charm foreign investors to repose faith in it.

Bankers off the record claim that GDP forecast for the next quarter could see a plunge ranging between 0.5%-2%. While the collections into the bank coffers seem to be surging with India’s largest bank SBI collecting Rs.1.2 lakh crore till date and the banking sector as a whole collecting Rs.8 lakh crores since Nov 8.

There is a saying there are good things and bad things about any economic action that is taken. The good things depend upon the future actions that the government will take while the bad on the effect of the sudden withdrawal in the currency that the country has to face. The next few months could prove to be the litmus test for the country. The question remains, can we be optimistic and think that there are good times ahead?