Indian economy grows 7.3 percent in September quarter but demonetization to have an impact in future

India has posted the world's fastest growth rate for a large economy in the September quarter, yet that offered cold comfort after misery inflicted by the government's shock move to remove high denomination banknotes from circulation.

Gross domestic product (GDP) data released on Wednesday showed Asia's third-largest economy expanded by 7.3 percent on year between July and September, faster than a provisional 7.1 percent growth in the previous quarter.

Farm output grew 3.3 percent year-on-year during the quarter, faster than 1.8 percent in the quarter through June. Manufacturing slowed in the September quarter, posting an annual growth of 7.1 percent compared with 9.1 percent in the previous quarter.

India's growth rate overtook China in 2015 and has stayed ahead, thanks to reforms and stimulus undertaken by Prime Minister Narendra Modi since he swept to power 2-1/2 years ago.

But Modi's decision this month to scrap 500 rupee and 1,000 rupee currency notes has removed 86 percent of the currency in circulation virtually overnight.

Government’s demonetization move has left many companies, farmers, households suffering as in India, most people are paid in cash, and buy what they need with cash.

Economists agree the economy will take a hit this quarter and for several quarters to follow. But how bad depends on who is talking.

Finance Minister Arun Jaitley expects the cash crunch to have a minor impact lasting for a quarter or two. Private economists, however, reckon the impact would be felt through 2018.