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		<img align="left" alt="GDP" class="imgCont" height="464" src="http://bsmedia.business-standard.com/_media/bs/img/article/2017-02/28/full/1488295389-1113.jpg" style="border: 1px solid #DDD; margin-right: 10px; padding: 1px; float: left; z-index: 0;" title="GDP" width="620" />
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			The second Advance Estimates of gross domestic product (GDP) released by the Central Statistics Office (CSO) on Tuesday show an economy in the pink of health. Three trends stand out.&nbsp;</div>
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			First, contrary to expectations of consumption taking a hit after demonetisation, private consumption has grown robustly in the third quarter (Q3). Demonetisation had drained out 86 per cent of the currency in circulation and remonetisation is still not complete. Yet CSO now expects private consumption, which is largely households, to grow at a faster pace in the second half (October-March) of FY17 than in the first half (April-September).&nbsp;</div>
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			Second, after three quarters of consecutive quarters of contraction, investments rebounded in Q3. But, notwithstanding fears of a slowdown in private sector investments, CSO now expects the pace of acceleration in investments to rise in the fourth quarter (Q4).&nbsp;</div>
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			Third, while the government has already breached its fiscal deficit, CSO expects government expenditure to continue to grow robustly in the fourth quarter as well.&nbsp;</div>
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			The Advance Estimates suggest that fears of private consumption taking a hit after demonetisation were either misplaced or overblown. Private final consumption expenditure grew at a staggering 10.1 per cent in Q3. In Q4, CSO expects it to grow by 6.5 per cent.&nbsp;</div>
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			Thus, over the course of the second half of the financial year, private consumption is expected to grow at 8.2 per cent, higher than 6.1 per cent in the first half of the year, when demonetisation had not taken place. &nbsp;</div>
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			This raises two points. First, demonetisation had virtually no impact on household consumption in Q3. Second, growth is expected to slowdown in Q4, when remonetisation is believed to have gathered steam.&nbsp;</div>
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			Second, after contracting for three consecutive quarters, investments (gross fixed capital formation, or GFCF) grew by 3.5 per cent in the third quarter. This is a stunning reversal especially in light of the capital good segment of the Index of Industrial Production contracting by 7.7 per cent over the third quarter.</div>
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			And despite worries over bank lending falling and private sector investments not taking off, according to the CSO, investment activity is gathering steam. GFCF is now expected to grow at 6.5 per cent in Q4. Over the second half of the year, CSO now projects GFCF to grow at five per cent, after contracting by 3.7 per cent in the first half of the financial year.&nbsp;</div>
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			&quot;The sharp turnaround in investment activity, to a growth of 3.5% in Q3 FY2017 from the contraction in H1 FY2017 is also unexpected&quot; says Aditi Nayar, Principal Economist at ICRA</div>
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			Lastly, government final consumption expenditure grew by a staggering 19.9 per cent in Q3.&nbsp;</div>
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			And despite fears of the government breaching its fiscal deficit target, CSO expects it to grow robustly at 18.1 per cent in Q4.&nbsp;</div>
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			While it is possible that the bump in Q3 in government spending is on account of the revised pay and pensions after the 7th Pay Commission, it is difficult to see how this is maintained. &quot;At current rate and given that we are on the path of fiscal consolidation, this will be a bit challenging to maintain,&quot; says Soumya Kanti Ghosh, group chief economic advisor at SBI.&nbsp;</div>
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			It is possible as Madan Sabnavis, chief economist at CARE Ratings, says, that &ldquo;demonetisation impact has been negligible and concentrated in few sectors such as construction and real estate,&rdquo; but it is equally possible that as Nayar points out &ldquo;the early estimates of quarterly GVA rely heavily on available data from the formal sector, which is expected to have weathered the note ban better than the informal sector, the Q3 FY2017 GVA growth of 6.6% may not be fully capturing the impact of the note ban. Subsequent estimates that draw from wider data sources, may well revise Q3 FY2017 growth downward.&rdquo;</div>
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Advance Estimates suggest fears of consumption taking a hit due to note ban were misplaced

What demonetisation? All's well with the economy, says CSO