India Economy Trails Forecasts as Cash Ban Continues to Weigh

Updated on
  • GDP grew at 6.1 percent for the quarter ended March 2017
  • Economists predicted 7.1 percent as per Bloomberg survey

DBS' Rao Sees India GDP Reviving in 2Q

India’s economy grew at the slowest pace in more than two years in the first quarter, dragged down by Prime Minister Narendra Modi’s cash ban in November and the weight of the country’s bad bank debts.

Key Points

  • GDP expanded 6.1 percent in January-March quarter from a year earlier, compared with 7.1 percent in the survey
  • Gross domestic product grew 7.1 percent in the year through March after an 8 percent expansion the previous year, the Statistics Ministry said in a statement in New Delhi on Wednesday
  • Median estimate of Bloomberg survey of 38 economists pegged the growth at 7.1 percent

Big Picture

Economic growth weakened, driven down by the shock clampdown on high-value notes in November last year and affected in part by a change in the ministry’s accounting method to determine expansion. The figure was out of step with the purchasing managers’ manufacturing and services sectors that all showed signs of recovery, as well as the bumper food grain output estimated during 2016-17. As the Modi government gears up for the July 1 roll out of the new national sales tax, this will dent policy makers hopes that India will retain its spot as one of the world’s fastest-growing economies.

Economist Takeaways

  • "The fourth quarter does not look good," said Anjali Verma, economist at PhillipCapital. "The banking sector and the construction sectors haven’t done well and going ahead they need to perform well to offer support to the economy -- for monetary policy it means status quo."
  • "FY17 growth came in at 7.1% in line with the advance estimates and our forecast," wrote Priyanka Kishore, lead Asia economist with Oxford Economics Ltd, in an email. "Though the Q4 print undershot our below-consensus expectation, we remain of the view that the situation has improved since then, as flagged up by the turnaround in the ‘bottom-up’ indicators."
  • "India’s rising banking sector non-performing loans continue to weigh on bank credit to the industrial sector, with key sectors such as power, steel, textiles and construction having relatively high levels of non-performing loans and stressed assets," according to Rajiv Biswas, Asia-Pacific chief economist for IHS Markit. 


  • Gross value added -- a key input of GDP that strips out taxes and subsidies -- rose 5.6 percent in January-March; that’s slower than the previous quarter’s 6.7 percent.
  • Full-year GVA is seen growing at 6.6 percent compared with 7.9 percent the previous year
  • Exports are seen rising 6.7 percent compared with a fall of 4.7 percent
  • Among sectors, mining rose to 6.4 percent from 1.9 percent; manufacturing fell to 5.3 percent from 8.2 percent; financial services fell to 2.2 percent from 3.3 percent; agriculture expansion slowed to 5.2 percent from 6.9 percent; construction contracted 3.7 percent from 3.4 percent

— With assistance by Manish Modi, and Iain Marlow

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