New Delhi: After a disappointing first quarter, India’s GDP is expected to grow around 6.4 per cent in 2017-18, according to an SBI Research report. It was last in 2013-14 that the GDP had grown by 6.4 per cent.
World Bank’s former chief economist and former chief economist of India Kaushik Basu said that the downturn in India’s growth is “very worrying”, underscoring that this is the “hefty price” the country has paid for demonetisation.
India’s GDP growth dropped to a three-year low of 5.7 per cent during April-June as manufacturing dipped and the impact of demonetisation lingered on.
“We believe GDP growth in current fiscal will remain weak. The second quarter GDP numbers are likely to be closer to the first quarter,” said SBI.
“We, however, see GDP growth picking up in the third quarter. In the fourth quarter, the growth is likely to cross 7 per cent. We are hopeful of a better fourth quarter, but that is crucially dependent on the outcome of resolution of stressed assets that falls due in the fourth quarter,” said SBI.
Meanwhile, Mr Basu said 2.3 percentage points of growth has been lost due to demonetisation.
“The downturn in growth is very worrying. I knew it would go below 6 per cent because the demonetisation was a big negative shock to the economy. But 5.7 per cent growth is lower than I expected,” said Mr Basu, the former senior vice president and chief economist of the World Bank.
He pointed out that from 2003 to 2011, India was growing typically over 8 per cent per annum. “Now with oil prices so low, China ceding space to India, our growth should have been back to well over 8 per cent. Hence, the first quarter growth this year of 5.7 per cent implies 2.3 percentage points of growth has been lost due to demonetisation. This is a hefty price,” Mr Basu said.
“But the demonetisation mistake and inadequate performance of the export sector means that the overall performance has been disappointing. These mistakes can be corrected,” he said.
He said unless the government again makes a mistake like the demonetisation, the economy should recover in 2018.
“But I expect two more quarters of poor growth. The October to December quarter, especially, could see a slowdown, since the farmers last year suffered a lot when they discovered that ordinary people’s buying power had been curtailed by the demonetisation and though they had produced a lot, they could not sell. We are likely to see a backlash of that later this year,” Mr Basu said.
“One policy risk is if we try to go digital, doing away with cash too fast,” he cautioned.
