How is India's economy in the first quarter of 2016
India's economy is growing despite monetary reform
Despite a radical cash reform, the Indian economy grew by 7.0 percent year-on-year in the last quarter of 2016, according to official figures. For the entire fiscal year ending March 31, 2017, state statisticians expect growth of 7.1 percent. The government announced in New Delhi on Tuesday.
The estimate is hardly lower than in the previous quarters. In the second and third quarters of 2016, India's gross domestic product (GDP) increased by 7.2 and 7.4 percent year-on-year. The official figures thus exceed most estimates.
The majority of analysts, like the Organization for Economic Cooperation and Development (OECD), had previously assumed that India's growth would slow down more in the quarter just ended. The International Monetary Fund (IMF) even expected growth of a comparatively low 6.0 percent in the last quarter of 2016 and in the first quarter of 2017. Most observers agreed that growth would not pick up again until March or April.
The reform is still ongoing
The main reason for this was a radical cash reform. On the night of November 9, the Indian government surprisingly declared the country's two largest banknotes, and thus more than 80 percent of the cash in circulation, to be invalid. The subsequent exchange process caused great chaos. To date, there are not enough new notes in circulation. In particular, rural poor, who often do not have a bank account, suffered from the measure.
The growth figures were the first to be published by the statistics office for the past quarter. Usually, several months later, more, usually more precise, statistics follow. This is because the growth of smaller companies in particular has not yet been fully recorded so shortly after the end of the quarter. Small and informal companies in particular were particularly hard hit by the cash reform.
The November 9 cash reform took millions of Indians by surprise and caused chaos in currency exchanges.
There are voices in India who point out and emphasize that it is still too early for a final assessment. Sunil Sinha, chief economist at India Ratings & Research, told the AFP news agency: "Let's wait for the fourth quarter first. That will be a more reliable parameter for assessing the cash reform."
IIFL Institutional Equities economist Ashutosh Datar said the full picture is still too big: "There will be a downward reassessment when the numbers for the following quarters are on the table."
Praise and warning from the OECD
The government announced its quarterly figures on the very day the OECD presented a new study. In the, she praised the Modi government for reforms that would have accelerated growth. In its report, the OECD writes that the formulation of an inflation target and the deregulation of foreign direct investment are responsible for the growth success.
"The speed of the reform policy is amazing," says the study. "140 million people in India have escaped poverty in the past few years alone." However, OECD Director General Jose Angel Gurria warned that "there is no reason to sit back and relax. Rather, the message of the study is that the reform momentum must be sustained so that more growth can come."
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