The economy may have beaten the note ban blues to grow at an estimated 7 per cent in the third quarter of the fiscal year, but sub-sectors such as construction, and finance and real estate have lagged behind and will take time to pick up.
Data released by the Central Statistics Office showed that the construction sector grew just 2.7 per cent in the quarter ended December 31, 2016, while financing insurance, real estate and business services expanded just 3.1 per cent.
On Tuesday, the country’s Chief Statistician TCA Anant had noted that the only sector that had done considerably worse in the third quarter was finance and real estate. “Aggregates of both credit and deposit were on the lower side in the third quarter,” he noted.
But, questioning the impact of demonetisation on the lower growth in real estate, Anant had said the sector is also registering a lot of restructuring due to the passage of the Real Estate Regulation Act. “I am not sure what this (low growth) is attributable to,” he had told reporters.
However, private economists have pointed out that both the sectors seem to be impacted by the currency squeeze that started after scrapping of the old series of ₹500 and ₹1,000 notes on November 8.
“Growth in the construction and finance sub-segments are at a low and an all-time low, respectively, in the current base year…With cement dispatches for January 2017 declining by a whopping 13per cent, it is not clear how construction activity is reviving in the fourth quarter of the fiscal. Similarly, bank credit growth is still at December 2016 levels,” said a research report by the State Bank of India.
Sunil Sinha, Principal Economist, India Ratings, pointed out that typically, construction activity tends to pick up after the monsoon. “But growth in the third quarter dipped compared to the second quarter,” he noted.
Similarly, though deposits into banks did increase post-demonetisation, the funds were not deployed by banks in the months following demonetisation, he argued.
Q4 impact“The impact of demonetisation was felt only in the second half of the third quarter, and much of it was offset by higher demand during Dussehra and Diwali. It is likely that fourth-quarter growth could be more impacted,” said Sinha.
SBI has however, pegged GDP growth in the fourth quarter at 7.1 per cent and expansion in the gross value addition at 6.7 per cent.
Moody’s, in a report released on Wednesday, said demonetisation will be credit positive and the economy is likely to pick up and reach the pre-note ban rate by the second half of 2017.
However, it warned that sales in the real estate and auto sectors fell sharply in the immediate aftermath of demonetisation and these will recover only in the second half of the year.
Realty sales, launches downSales volumes in the real estate sector dipped by about 40 per cent in the October-December 2016 quarter, while launches dropped 60 per cent.
“The slowdown in economic activity has weighed on demand for credit among retail borrowers. This trend is likely to continue over the next few months,” the Moody’s report said, adding that the slowdown in loan growth is expected to continue through to the next quarter.
Loan growth for 14 of India's 15 rated banks declined in December 2016 from the previous quarter as demand for credit from households and businesses cooled along with economic activity, it said.