Even though a 7 per cent headline growth number for Q3 suggests resilience in the economy despite note ban, analysts today said a sharp cut in the year ago's data helped achieve it, while demonetisation led to an impact of over 1 percentage point on GDP expansion.
"The steep downward revision of Q3 FY16 has in turn led to higher growth in Q3 FY17, thus masking the impact of demonetisation in the Q3 figures," the economic research department of country's largest lender SBI said in a note.
It said numbers in a slew of activities like construction being at a 7-quarter and finance at record low are "some of the numbers beneath the surface however signify the impact of demonetisation".
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The note said looking at the gross value added (GVA) growth is a better gauge and estimate growth to slow down to 6.7 per cent in FY17 as against the previous fiscal's 7.8 per cent under the method.
Foreign brokerage Bank of America Merill Lynch said the decision to ban over 85 per cent of the outstanding currency by abolishing Rs 500 and Rs 1,000 notes led to an impact of over 1 percentage point on growth.
"Although December quarter (Gross Value Added) growth, at 6.6 per cent, surprised on the upside (as against an estimate of 6 per cent), it is still lower than the 7.5-8 per cent projected by us in 2HFY17 before the demonetisation shock...Demonetisation hit growth by over 1 per cent," it said.
Private sector lender IDFC Bank said the services sector has been hit the hardest by the demonetisation exercise, but the economy was able to show a 6.6 growth on GVA basis due to an uptick in agricultural activity and industrial sector.
"Services sector did see an impact of demonetisation
with growth sliding to 6.8 per cent from 8.2 per cent in Q2 FY17. The decline in services growth is attributable to financial, real estate and professional services category," a note from the bank said.
The Central Statistics Office (CSO) put the growth rate for October-December 2016 period at 7 per cent, compared to 7.4 per cent in the second quarter and 7.2 per cent in the first quarter.
The government also pegged GDP growth for FY17 at a higher-than-expected 7.1 per cent for the current fiscal despite note ban with agriculture sector doing exceptionally well, helping India retain the tag of world's fastest growing major economy.
Analysts at BofAML said the Reserve Bank needs to cut rates for pushing the growth number.
"We continue to point out that lending rate cuts are needed for a cyclical recovery. While reforms could push up potential over, say, five years, the immediate challenge is to get back to current potential growth," it said.
