India likely to fall behind China in terms of GDP growth rate

World - Mohit Shah - Feb 28,2017

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india likely to fall behind china in terms of gdp growth rate

Effects of demonetization to become evident as India announces second full-year estimate for 2016 and October to December quarter GDP growth rate.

India’s Central Statistics Office (CSO) will release the gross domestic product (GDP) growth estimates for the October to December quarter and the second full year estimate for 2016-17 on 28 Feb.

In July to September quarter, India’s GDP growth rate was 7.3%. For the October-December quarter, the GDP growth rate is expected to be 6.2% to 6.8%. China’s GDP growth rate in the October-December quarter was almost 6.8%.

India is likely to lose its crown when the GDP growth figures for October-December quarter is announced on 28 Feb.

Annual GDP growth rate of India in 2015-16 was 7.9 percent and the first annual estimate predicted that the country would grow 7.1 percent in 2016-17, however, the first estimate is based on incomplete factory output data & corporate income and the effects of demonetization was not taken into account.

India is a country where about 96% of all transaction occur in cash. In Nov 2015, India had demonetized 86% of India's total currency in circulation. Due to demonetization, its economic activity was temporarily disrupted due to the cash shortage. Logistics, real estate, construction, gold, gems and jewelry, automobile and transportation were amongst the sectors that were severely damaged.

India’s Ministry of Statistics & Programme Implementation in January 2017 had lowered its prediction for the GDP growth from 7.6 percent to 6.9 percent for the fiscal year 2016.

In December, IMF also lowered India's growth rate from 7.6 percent to 6.6 percent for the 2016-17 financial year.

However, the pace of re-monetization was very quick and India had injected new currency worth 9.2 trillion rupees ($135.21 billion) in the economy by December. It is expected that the impact of demonetization would end and economic activity will resume as usual in the coming months.