World-beater status at risk as India rebuts threat to growth

Bloomberg

Prime Minister Narendra Modi’s administration sought to refute concerns that the clampdown on cash would strip India of its status as the world’s fastest-growing big economy. Gross domestic product, which grew a slower-than-estimated 7.3 percent in July to September, will slump to 6.5 percent over the next quarter, according to the median estimate in a Bloomberg survey of 14 economists. That’s weaker than the previous 7.8 percent projection and the 6.7 percent forecast for China.
“At the moment all these statements are based without data,” TCA Anant, the government’s chief statistician, told reporters in New Delhi on Wednesday. “Assumptions can lead people to all sorts of conclusions and I don’t want to contest at that level. I would rather suggest you wait for the data.”
A steep economic slowdown risks hurting foreign investment into India and voters’ perceptions of Modi before key state elections next year. While supporters say his Nov. 8 move to abruptly invalidate 86 percent of currency in circulation will help curtail tax evasion and graft, critics say it will dent demand in an economy where almost all consumer payments are in cash.
“Attention has already turned to the impact of the government’s demonetization measures, which could cause significant disruption in the current quarter and possibly beyond,” Shilan Shah, Singapore-based India economist at Capital Economics Ltd., wrote in a report after the GDP data. The central bank will lower the policy rate to 6 percent from 6.25 percent at a Dec. 7 review to “cushion the blow,” he said.
July-September data showed Manufacturing growth slowed to 7.1 percent from 9.2 percent a year earlier and mining contracted 1.5 percent versus a 5 percent gain. While expansion in trade and similar services picked up to 7.1 percent from 6.7 percent, that in financial services slowed to 8.2 percent from 11.9 percent. Much of the growth was supported by government spending, which surged 15.2 percent from the previous year, and private consumption, which rose 7.6 percent. Worryingly, investment fell 5.6 percent, a continued run of disappointing data.
Economists at Standard Chartered lowered their GDP growth forecast for the 2017 fiscal year to 6.8 percent from 7.7 percent, and to 7.2 percent from 7.8 percent for 2018. They cited the demonetization move, the likely implementation of a goods and services tax, and a more uncertain global environment after Donald Trump’s US election victory.