India’s strong GDP data leaves economists scratching their heads

India defied expectations on Tuesday to retain the title of the world’s fastest growing major economy, despite the pain caused by Prime Minister Narendra Modi’s shock crackdown on cash.

Annual gross domestic product (GDP) INGDPQ=ECI growth for the October-December period came in at 7.0 percent, a tad slower than 7.4 percent in the previous quarter but much faster than the 6.4 percent expansion forecast by economists in a Reuters poll.

It was also higher than China’s 6.8 percent growth for the last three months of 2016.

Modi’s decision last November to outlaw old 500 rupee and 1,000 rupee banknotes was widely expected to exact a heavy toll on an economy where most people are paid in cash and buy what they need with cash.

Little surprise, then, that Tuesday’s robust GDP figures have left economists dazed, and have also raised fresh doubts about the quality of India’s official economic data reporting.

“Perhaps this data is not capturing the impact of demonetization,” said Aneesh Srivastava, chief investment officer, IDBI Federal Life Insurance Co. Read more….