India's economy is forecast to grow 7.1% in the current financial year, a number that doesn't incorporate the impact of demonetisation, suggesting that the final figure could be well below the 7.6% recorded last year.
Independent economists now have a bleaker picture of the economy and are likely to lower their forecast again, having cut estimates once after the government invalidated high-denomination currency notes on November 9.
The first advance national income estimates, which have been announced a month earlier than usual because the budget presentation has been advanced, are largely based on data up to October.The budget is proposed to be presented on February 1 against the usual practice of the last working day of February .
The estimates are in line with the Reserve Bank of India's latest forecast. The central bank expects gross value added to grow 7.1% compared with 7.6% estimated earlier and maintains that demonetisation will have a transient impact on the economy .
India Ratings and Research has already revised its growth forecast for 2016-17 to 6.8%, 100 basis points lower than its earlier projection of 7.8%, while Ambit Capital has cut the country's GDP estimate for 2016-17 to 3.5% from the previous 6.8%.
While bank deposits have surged following demonetisation, credit growth has crashed. Anecdotal evidence suggests that consumption has been hit and investments have slowed.
Gross fixed capital formation, a proxy for measuring investment activity, is expected to fall 0.2% in 2016-17 compared with a 3.9% expansion 2015-16.
The Indian economy expanded 7.1% and 7.3% in the first and second quarter, respectively , of the current financial year.