7% expansion in 3rd quarter belies exaggerated claims of note ban impact, says Arun Jaitley

Buoyed by higher-than-expected GDP growth, Finance Minister Arun Jaitley on Wednesday said a 7 per cent expansion in third quarter belies exaggerated claims of note ban impact on rural economy.

Jaitley, who returned from his UK visit this morning, seemed to agree with RBI Governor Urjit Patel’s assertion of a sharp V-shaped recovery as remonetisation picks up.

The October-December quarter of 2016 was “substantially impacted by demonetisation (of higher denomination currency),” the finance minister said.

“Demonetisation, admittedly, had led to the squeeze of currency because this was the period during which the replacement of high denomination currencies was taking place and many people were apprehensive to what its impact on overall growth would be,” he said.

But, with a 7 per cent growth in gross domestic product (GDP) the worst fears for the economy have been put behind, Jaitley added.

“I had consistently maintained that the revenue (tax collection) figures, which actually show the real level of growth, indicated that the growth was there, and some areas could be adversely impacted, particularly those which were cash dominated and also a part of the shadow economy and even constituted parts of the informal economy,” he said.

But demonetisation has helped integration of informal with the formal economy, he said, adding the money that was deposited in the banks is now being spent through a system which is being recorded.

“And I think, the GDP data for Q3 really reflects that position,” he said. “First of all it belies exaggerated claims made by many that the rural sector was heavily in distress.”

Agriculture growth, he said, this year is at a record high.

“Obviously, high rate of agriculture growth has contributed to Q3 GDP. Also, manufacturing increase has contributed to the Q3 GDP and this was already reflected in the VAT data of the states and also the excise data of the Central revenue collection,” he said.

The Central Statistical Organisation (CSO) on Tuesday projected a 7.1 per cent economic growth in the year ending March 31, the slowest since 2014 but still the fastest among major economies.

“Now that we are in the month of March, remonetisation has picked up substantially. I think a combination of remonetisation, resilience of Indian economy and some signs of growth returning back to the world, are evident and therefore I do expect in the future quarters this figure itself will grow further,” he said.

“With remonetisation at an advanced stage, today money is in the market, demand is also increasing, economic activity is picking up... Economic reforms undertaken by the government will help propel GDP growth in coming quarters,” he added.