Post Demonetization and  GDP growth in Q3-2017 : Needs to take Review

The recently published  news by Central Statistic Organization (CSO)  that, GDP grew at a healthy rate of 7.3% in the October-December quarter despite Prime Minister Narendra Modi’s demonetization move, declared on 8th Noember 2016 and run almost  two months   is not an easy but as serious as to search diagnosis for abnormal growth. Because the whole picture and parameter’s at global level is now changing if the GDP growth is continue by 7% or above. The debate on demonetization is going on from last four months.

Globally, Indian Economy has established it’s hold that, grip continuously as number one as a fastest economy. It’s a surprising or can say Central Statistic Organization was played with statistic to unnecessarily prove of India’s capability because International Monetary Fund (IMF) in its annual report on India had forecast that the GDP growth will slow from 7% to 6.6% in 2016-17 due to “temporary disruptions”, World Economic Forum, even Reserve Bank of India had lowered GDP growth forecast for this fiscal to 6.9% and well known Economist Shri Amartya Sen also  had  predicted post monetization  5-6% growth. Even Centre for Monetary Indian Economy CMIE had pragmatic predicted that, Indian Economy will run with 5-6% GDP growth for next five years. All are assumed   that, India will grow it’s GDP by 8% in next financial year 2017-2018. Therefore; there was a need to search pros and corns behind the growth.

What is Central Statistic Organization?

The Central Statistics Organisation is responsible for co-ordination of statistical activities in the country, and evolving and maintaining statistical standards. Its activities include National Income Accounting; conduct of Annual Survey of Industries, Economic Censuses and its follow up surveys, compilation of Index of Industrial Production, as well as Consumer Price Indices for Urban Non-Manual Employees, Human Development Statistics, Gender Statistics, imparting training in Official Statistics, Five Year Plan work relating to Development of Statistics in the States and Union Territories; dissemination of statistical information, work relating to trade, energy, construction, and environment statistics, revision of National Industrial Classification, etc.

Over the CSO report, rating agencies of India and abroad prominently studied those sectors where growth and declinations has taken place. The forgoing analysis traces patterns in various economic variables over the period of 4 months with a backdrop of the situation as of September 2016 which was a high- point in the economy when revival in demand pointed to a turnaround. These are :

-Growth profile of GVA

-Trends in Industrial growth across sectors

-Growth in corporate sales across segments

-Movement in currency in circulation

-Trends in movement in bank deposits and credit

-Stock market activity

Following are some sector- wise study, shown overall impact on the   Indian Economy.


  1. GDP growth profile

Overall growth in GVA at constant prices did slow down to 6.6% in Q3- FY17 compared with 7% in Q3-FY-16. This can largely be attributed to the negative effect of demonetization which was evident in case of manufacturing, construction, trade, transport and communications and finance, real estate and professional services. The sectors that continued to do well and prop up GVA growth were social, community services, and agriculture which helped to counter the negative effects of lower spending in the other segments.   If the GDP growth numbers are not revised going ahead for 9M, then GDP growth would cross the 7% mark this year.

  1. Industrial Growth
Month/ Year IIP Basic Goods Capital Goods Inter Goods Consumer Goods Durable Non Durable
Sep-16 0.7 4.0 -21.6 2.2 6.1 13.9 0.3
Oct-16 -1.9 4.2 -27.0 2.6 -1.4 0.6 -3.0
Nov-16 5.7 4.7 15.0 2.6 5.2 9.4 2.5
Dec-16 -0.1 5.5 -3.9 -1.3 -6.0 -8.9 -4.4
Jan17 2.7 5.3 10.7 -2.3 -1.0 2.9 -3.2

The post demonetization picture of Industrial sector is showing mix effects, it has been jagged over the five months period. The impact on consumer goods has been distinct in December and January while November has been relatively buyout which is contrary to what would have been expected post demonetization. Basic goods have grown consistently which can be attributed to government spending aggressively in infra. Capital goods progress has been spiked by single month positive noise elements in the machinery segment which has come over negative growth rates last year.

Consumer D- Discremationary Segment like durable

Consumer- ND: FMCG Goods

Quite clearly the sectors related to household spending have been impacted in Q3 due to the limited availability of cash. Here, there would tend to be a revived of pent up demand as the situation normalizes. But for services, which include transport, hotels, trade, telecom, there could be permanent erosion in output. This is probably why the CSO has also put out a growth number of 7.1% in GDP. This year as against 7.9% last yr with the difference

The improvement in growth in sales in this quarter can be attributed to the government proactive stance on infra. Other factors such as revival of steel industry also contributed to the higher growth rate in the metals sector. In general those industries that were not directly linked with household spending behavior tended to do better in this quarter with an added advantage of negative base effect. The oil related sector did better on the back of an increase in the price of crude oil gradually over time.

Banks Deposit and Credit

Bank deposit was one of the main beneficiaries of this policy as old notes were deposited. This did create problems for banks which rushed to invest in GSecs which were depleting with the RBI prompting remedial action through issuance of MSS bonds. These deposits had peaked on January 6th . Bank credit however, continues to lag and on a point to point basis has witnessed a marginal decline from Rs. 74.95 lkh crore as o September to Rs 74.85 lakh crore as end of 2017. The lower off take is a reflection of lower activity in the industrial segment which continues to witness negative growth in Industrial credit over March as well as the NPA challenge which banks are confronting.

Stock Market-

The movement in the stock indices is driven by several factors with specific events or announcements leaving their impact. Other, the impact of any positive or negative news tends to last for a couple of trading sessions after which it is normally ‘business as usual’ .The sensex did come down when the scheme was announced though it did also coincide with the US Presidential Elections too which impacted stock markets across the world. The next trough came about in December which may not be linked with demonetization. Subsequently it has been driven by other factors which have taken the index to a high of 23946 by March 10th . It closed the 29000 mark just after the state election results were announced, which were interpreted in a way as a vindication of the scheme of demonetization. Hence on the whole the capital market has been isolated from the developments in this area, and the downward movement in November could be attributed to global factors- with demonetization providing a secondary impact.


The impact of demonetization does appear to be getting diluted over time. The effect on the real estate has been sharpest in the months of November and December and preliminary data on the auto sector does suggest revival in pent up demand. The monetary sector has gone through challenging times on the back of the NPA legacy issues and still witness low growth in credit.  Demonetization decision does affect on stock market for a while but aftermath state elections, Modi wave and US presidential election ,positive reflection has noticed. Sensex has grown up to 28946 from 26041. It means, growth registered by 2905 points higher. After CSO’s announcement of 7.3% GDP growth, primary sign was observed as abnormal, rapid growth bu.t sector wise study and sensex  real picture has shown every sector’s  contribution for the India Economy


Care Rating Agency’s Report