India loses fastest growing economy tag after sharp growth slowdown
The 2016/17 GDP growth registered was 7.1 per cent, which was lower than 8 per cent, which was achieved in the previous FY of 2015-17.
India lost its fastest-growing major economy tag in the January-March period, which was the fourth quarter of the financial year (FY) 2016-17, with the Gross Domestic Product (GDP) growth coming down to 6.1 per cent compared with a provisional 7 per cent in the previous quarter.
The growth of 6.1 per cent was also lower than China’s growth in the same period which was 6.9 per cent.
The data released by the Ministry of Statistics on 31 May 2017 showed that the GDP grew 7.1 per cent in the FY 2016-17, which was slower than 8 per cent growth registered during FY 2015-16.
The GDP numbers for the FY 2016-17 was based on the new 2011-12 base year, which was adopted in recent past. The changes in the new base year also include Index of Industrial Production (IIP) and Wholesale Price Index (WPI).
What resulted in slowdown India’s growth?
India's economic growth unexpectedly slowed to its lowest in more than two years and reports suggest that it was dragged down by construction, manufacturing and trade services. Report on contraction in these fields are given below
• Construction activity: It contracted 3.7 per cent year-on-year in the March quarter compared with a 3.4 per cent growth in the prior quarter.
• Manufacturing: It grew 5.3 per cent in the last quarter from a year ago, slower than an annual rise of 8.2 per cent in the December quarter.
• Trade, hotels and transport services: The annual growth in these areas slowed to 6.5 per cent in the January-March period from 8.3 per cent a quarter ago.
The second reason for this unexpected slump in GDP growth in March quarter can also be attributed to Prime Minister Narendra Modi’s decision on 8 November 2016, in which he scrapped two high-value banknotes of the country, i.e. Rs 1000 and Rs 500 notes which were in circulation till that evening. The decision of scrapping the old banknotes had an effect on the economic activity of the country.
How scrapping the banknotes had an impact on the economy?
May be possible that the unexpected decision of PM Modi of scrapping the banknotes of that era was aimed at flushing out all money that Indians were hiding from the eyes of the taxman, but at the same time, the decision also pounded consumer demand in the economy where people were paid and bought what they needed with cash.
Reports also suggest that this figure is the lowest since the December quarter in 2014, which registered 6.0 percent growth.
The report or GDP data released by the Ministry of Statistics may be a setback for Prime Minister Narendra Modi, who completed three years in his office on 26 May 2017.