Two Months After Demonetisation – An Indian Economy Snapshot

Two Months After Demonetisation


Demonetisation has been the biggest reform move in India since nationalisation of 14 private banks in 1969. The impact of the decision is already being felt. As of mid-January 2017, the forecast on the GDP expected in the last year is 7.1%, as against the pre-demonetisation expectation of 7.6%. There is a slowdown happening alright and the Central Statistics Office (CSO) data released recently seems to bear that out.

The economic indicators for November and December 2016 give out a mixed picture with some sectors surprising with higher than expected numbers while many others taking a dip steeper than expected, in the post-demonetisation era.

Snapshot of the Economy for November and December 2016 Versus 2015

Sectors That Grew

  • Petcoke
  • Pulses Crop
  • Wheat Crop
  • Rabi Sowing
  • Port Tonnage
  • Power Generation
  • Tractors
  • Rail Freight
  • Exports

Contrary to expectation, the Index of Industrial Production (IIP) grew at 5.5% in November ’16 while in October the same year, the IIP actually contracted by 4.6%. Remember, October was the month previous to the demonetisation announcement.

  • Capital Goods production increased by 15% in November ’16 as against a contraction of 24% in the same month in 2015.
  • Mining sector witnessed a growth in output of 3.9% in November ’16 as against 1.7% in ’15.
  • Power generation increased by 8.9% in November ’16 as against a growth of 0.7 % in November ‘15.
  • Agriculture: Wheat sowing area has actually increased by 7% 309.6 lakh hectares; Pulse growing area has grown 11% to 155.35 lakh hectares. The total Rabi crop area has grown by 34.26% till January ’17 from 581.95 lakh hectares in Jan ’16. Oilseed growing area has risen by 6.41 lakh hectares from 75.06 lakh hectares in Jan ’16.
  • Exports: Exports grew in December ’16 by 5.7% to $23.885 billion as compared to $22.593 billion in Dec ’15.
  • Private Final Consumption Expenditure (PFCE): Household spending is expected to grow from Rs 63.01 lakh crore in FY 15-16 to Rs 67.13 lakh crore in FY 16-17. However, consumer spending when measured by PFCE is expected to register a lower growth rate at 6.54% for FY 16-17 which is lower than the growth rate of 7.4% seen during FY 15-16.
  • Gross Fixed Capital Formation (GCFC): A lowering of consumer spending will see a drop in investment, which in turn is expected to impact GFCF. As per advanced GDP estimates, the GCFC shall see (-) 0.2% growth as compared to 3.9% seen in FY 15-16.

Sectors That Contracted

  • Central Excise
  • Service Tax
  • Petro Products
  • Aviation Turbine Fuel
  • Petrol consumption
  • Diesel

Manufacturing sector contracted by 0.3% in November ‘16 as against a growth rate of 3.9% in the same month in 2015.

Automobile sector has faced the biggest challenge as sales for December have been lower for most car manufacturers.

Agriculture: Paddy sowing area has dropped by 4.56 lakh hectares from 19.48 lakh hectares. Cereals (Coarse) sowing area also came down by 3.53 lakh hectares from 58.40 lakh hectares.

World Bank Perspective

World Bank (WB) perceives a lower growth rate for India but maintains that India will continue to remain the world’s fastest growing economy ahead of China, going into 2017. WB has lowered its GDP estimates for India from 7.6% to 7% for FY17-18. But expects India’s growth to pick up again in FY 18-19 several reform measures including GST and Insolvency and Bankruptcy Code hopefully get implemented.

Central Statistics Office (CSO) for FY 16-17

The CSO has released the following Advanced Estimates for 2016-17 (at 2011-12 prices)

Gross Domestic Product (GDP): The growth rate for FY 16-17 is expected at 7.1% as against 7.6% in FY 15-16.

Gross Value Added (GVA): Expected GVA for FY 16-17 is 7.0% as against 7.2% for FY 15-16

Manufacturing: GVA for FY 16-17 is expected to grow by 7.4% which is much lower than 9.3% in FY 15-16. It must be noted here that the manufacturing sector has witnessed a growth of (-) 1.0 between April and October ’16, as compared with 5.1% seen during the same period in FY 15-16. However, the Wholesale Price Index (WPI) for manufactured goods showed a marginal rise 2.0% during April-October FY 16-17 as compared to (-) 1.3% during April-November FY 15-16.

Agriculture, Forestry and Fishing:  The GVA is expected to grow by 4.1% for FY 16-17 as compared to 1.2% in FY 15-16. This is a bit surprising, since this sector sees a large part of the supply chain transaction in cash and in the five months from Nov ’16 to Mar ’17, this sector is likely to suffer from the negative impact of demonetisation. But till 10 January ’17 the area under cultivation for many sub-sectors has actually grown, as shown above. The Animal Husbandry sector contributes around 39% of the GVA for agriculture and is expected to grow at 3.9% in FY 16-17.

Mining:  The GVA is expected to decline by 1.8% whereas FY15-16 saw a growth of 7.4%.

Construction: GVA is estimated to grow by 2.9% in FY 16-17 as compared to 3.9% seen during FY 15-16. This sector has taken a big hit since demonetisation as most builders and developers have stalled fresh launches and are focusing on completing existing projects and completing handover. Housing prices are expected to come down further during FY 17-18.

Electricity, Gas and Water supply: GVA will be mostly flat for FY 16-17. The GVA is expected to grow by 6.5% which is marginally lower than 6.6% seen during FY 15-16.

Financial, Insurance, Real Estate and Professional services sector: This sector will see a growth of 9.0% for FY 16-17 which is lower than 10.3% seen during FY 15-16.

Hotel, Trade, Transport and Communication Services: This sector is expected to witness a sharp decline in GVA from 9.0 in FY 15-16 to 6.0% in FY 16-17.

Public Administration, Defence and other sectors: GVA for this sector is likely to see a sharp rise. Growth is expected to touch 12.8% in FY 16-17, up from 6.6% seen during FY 15-16.

Per Capita Income: The per capita income for FY 16-17 is expected to grow at 5.6% as compared to 6.2% in FY 15-16.


It is still early to conclude on the impact of demonetisation on the Indian economy, but there is no doubt that there has been a major disruption to the economy. The next twelve months will unravel whether the disruption has been positive or negative.


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