The November 8, 2016 announcement to scrap Rs 500 and Rs 1,000 currency notes did have a huge impact on the GDP, but it also left economists scratching their heads as they looked at numbers which were puzzling.

Real GDP growth declined from 8 percent in 2015-16 to 7.1 percent in 2016-17, as momentum slowed over the course of the fiscal year. Real GDP growth slipped from 7.7 percent in the first half of 2016-17 to 6.5 percent in the second half. Quarterly real GDP growth also shows a deceleration in the third and fourth quarters relative to the first two quarters. The slowdown in these indicators predated demonetisation but intensified in the post-demonetisation period.

The Economic Survey 2016-17 volume 2 noted: “But a demonetisation puzzle is raised by the GDP estimates. While real growth decelerated, the slowdown was much smaller than expected: growth for the year as a whole was much higher than range of 6.5-6.75.”

It observed that “nominal GDP growth actually accelerated after demonetisation”.

Interestingly, the Volume 1 of the Survey had pointed out that demonetisation would impose short-term costs. Volume I also pointed out that conventional economic indicators— which source data from formal sector firms that might be more insulated from demonetization—were unlikely to capture these costs.

“A proxy for informal sector effects is two-wheeler sales which showed a rapid decline following demonetization but has, after more than six months, almost returned to pre-demonetization levels (Figure 23). The cumulative shortfall between actual sales and the trend lines is a proxy for the short-run informal costs.”

The worrying GDP data came in the April-June quarter of 2017.

India’s GDP growth tumbled to 5.7 percent, a sign that the slowdown induced by demonetisation coupled with the uncertainty around GST hit growth. The growth rate was the slowest in 13 quarters.

Data released by the Ministry of Statistics show that GDP at constant (2011-12) prices in Q1 of 2017-18 is estimated at Rs 31.10 lakh crore, as against Rs 29.42 lakh crore in Q1 of 2016-17, showing a growth rate of 5.7 percent.

“Quarterly GVA (Gross Value Added) at basic price at constant (2011-2012) prices for Q1 of 2017-18 is estimated at Rs 29.04 lakh crore, as against Rs 27.51 lakh crore in Q1 of 2016-17, showing a growth rate of 5.6 percent over the corresponding quarter of previous year,” the authorities said.

However, the Bharatiya Janata Party was quick to delink the poor growth rate from demonetisation.

The dip in GDP growth to 5.7 per cent in the first quarter of this financial year is "temporary" and not linked to demonetisation, said BJP President Amit Shah on September 7.

"The demonetisation has not had any negative impact (on economic growth). 'Notebandi' cannot be reason for GDP coming down to 5.7 per cent from 7.1 per cent," the Economic Times quoted Shah as saying.