GDP Data Contradicts Inflated Claims of Note Ban Impact: Jaitley

Remonetisation is up substantially and its combination with economic resilience has shown signs of return of growth.

Arun Jaitley, Union Finance Minister (Photo: Reuters)

Buoyed by higher-than-expected GDP growth, Finance Minister Arun Jaitley on Wednesday said a 7 per cent expansion in third quarter belies exaggerated claims of note ban impact on rural economy.

Jaitley, who returned from his UK visit on Wednesday morning, seemed to agree with RBI Governor Urjit Patel's assertion of a sharp V-shaped recovery as remonetisation picks up.

The October-December quarter of 2016 was "substantially impacted by demonetisation (of higher denomination currency)," the finance minister said.

Demonetisation, admittedly, had led to the squeeze of currency because this was the period during which the replacement of high denomination currencies was taking place and many people were apprehensive to what its impact on overall growth would be.

But, with a 7 per cent growth in gross domestic product (GDP) the worst fears for the economy have been put behind, Jaitley added.

I had consistently maintained that the revenue (tax collection) figures, which actually show the real level of growth, indicated that the growth was there, and some areas could be adversely impacted, particularly those which were cash dominated and also a part of the shadow economy and even constituted parts of the informal economy.

But demonetisation has helped integration of informal with the formal economy, he said, adding the money that was deposited in the banks is now being spent through a system which is being recorded.

The Central Statistical Organisation (CSO) on Tuesday projected a 7.1 per cent economic growth in the year ending 31 March, the slowest since 2014 but still the fastest among major economies.

Now that we are in the month of March, remonetisation has picked up substantially. I think a combination of remonetisation, resilience of Indian economy and some signs of growth returning back to the world, are evident and therefore I do expect in the future quarters this figure itself will grow further.

"With remonetisation at an advanced stage, today money is in the market, demand is also increasing, economic activity is picking up...Economic reforms undertaken by the government will help propel GDP growth in coming quarters,"

Kotak Institutional Equities said "the demonetisation impact was inconspicuous as data signalled mixed trends. However, the data coverage is not yet holistic as unorganised sector remains to be completely factored in."

Specifically, the cash-sensitive unorganised/SME segment is still not covered, implying that FY2017 estimates do not give a holistic picture, it added.

It further said that a more complete picture of the economy will be reflected only in the first revised estimate of FY2017 due to be released in January 2018.

The Congress party also dubbed the GDP numbers as "surprising" and "highly suspect" saying that it could dent India's global credibility and accused the prime minister and the finance minister of "misleading" the public.

The GDP numbers that have been released are surprising and highly suspect. The GDP growth as projected is questionable and will also undermine the credibility of Indian data globally.

Anand Sharma, Congress Spokesperson 

However, Finance Minister Arun Jaitley said that remonetisation is up substantially and its combination with economic resilience has shown some signs of return of growth.

"The Indian economic growth is likely to pick up further in the coming quarters," Jaitley said.

(With inputs from PTI)