Cash squeeze, GST launch issues push GDP growth to below 6 per cent

Construction and financial services sectors recorded a slowdown in growth with the GVA for “financial, insurance, real estate and professional services” sector growing at 6.4 per cent, down from 9.4 per cent last year. GVA growth for the construction sector also declined to 2.0 per cent in April-June from 3.1 per cent last year.

Written by Aanchal Magazine | New Delhi | Updated: September 1, 2017 8:12 am
 GDP, GDP growth, demonetisation, note ban, GDP figures, Modi GST, Jaitley GST, indian economy, indian express, business news  GDP had recorded a growth of 7.9 per cent in the April-June quarter last year. (Representational Image)

Economic growth slowed to 5.7 per cent in the first quarter of 2017-18 against 6.1 per cent in the preceding quarter. This was sharply below market expectations and came on the back of large-scale destocking undertaken by manufacturers ahead of the Goods and Services Tax rollout and the lingering impact of demonetisation. The GDP recorded a growth of 7.9 per cent in April-June quarter last year. The April-June growth estimate, the lowest in at least five quarters, trended down on account of a sharp deceleration in manufacturing growth, data released by the Central Statistics Office (CSO) showed.

The silver lining was the buoyant performance by some segments in the services sector. “Trade, hotel, transport, communication and services related to broadcasting” witnessed a pickup by growing 11.1 per cent in April-June from 8.9 per cent last year, while growth in “public administration, defence and other services” (in Gross Value Added terms) was clocked at 9.5 per cent in April-June as against 8.6 per cent last year.

Reacting to the numbers, Finance Minister Arun Jaitley said the figure was a “matter of concern”. He added that manufacturing growth had bottomed out in April-June, services sector had improved and gross fixed capital formulation had turned positive in the first quarter of the financial year. The manufacturing sector’s growth had gone down due to GST’s impact on destocking and the curve could turn for the better, he added.

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The Gross Value Added or GVA growth, which serves as a more closely watched estimate for quarterly growth, remained unchanged from the previous quarter at 5.6 per cent in April-June but fell sharply from the 7.6 per cent growth recorded in the April-June quarter last year.

Chief Statistician of India T C A Anant attributed the decline to “poor” corporate performance in GVA terms, which is GDP minus net taxes and high level of inventory destocking in the first quarter of this financial year in anticipation of GST rollout from July 1.

GVA for manufacturing sector grew 1.2 per cent in April-June as compared to a growth of 10.7 percent in the same quarter last year.

“The private corporate sector growth (which has a share of over 75 per cent in the manufacturing sector) as estimated from available data of listed companies with BSE and NSE is (-) 0.9 per cent at current prices during Q1 (April-June) of 2017-18 as against 10.2 per cent in Q1 of 2016-17,” the CSO release said.

Only three of eight sectors showed a pickup in GVA growth in April-June. Construction and financial services sectors recorded a slowdown with the GVA for “financial, insurance, real estate and professional services” sector growing at 6.4 per cent, down from 9.4 per cent last year.

GVA growth for the construction sector declined to 2.0 per cent in April-June from 3.1 per cent last year. GVA growth for “agricultural, forestry and fishing” declined marginally to 2.3 per cent from 2.5 per cent in the corresponding period last year, data showed.

Industry players said that while the uncertainty over the GST implementation did impact the numbers, growth is likely to pick up in the second half of the fiscal on the back of more rate cuts.

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On the data, Pankaj Patel, President, FICCI said, “Growth numbers indicate a moderation in agriculture and industrial sectors. The uncertainty surrounding implementation of Goods and Services Tax did impact industrial production in the first quarter. However, we are confident that this effect will wane off in coming months… A marginal improvement has been reported in fixed capital formation numbers which is positive and is probably supported by the increasing public investments. However, the persistent slack in private domestic investments remains a concern. The cost of finance for industry remains high. Though the Reserve Bank of India had cut the repo rate by 25 bps in the monetary policy announced earlier this month, a steeper cut at this juncture would have given a stronger signal. A turnaround in domestic private investments is critical to push growth and employment generation in the economy.”

Aditi Nayar, principal economist, ICRA, said that the GDP and GVA growth figures for Q1 FY’18 have undershot the expectations by a considerable degree.

“Restocking post-GST and a favourable base effect are likely to contribute to higher GDP and GVA growth in the remaining quarters of FY2018. Nevertheless, the likelihood of economic growth surpassing 7% for the ongoing fiscal year has diminished after the bleak Q1 readings,” said Nayar.

She said that the combination of lower volumes and higher discounts offered to reduce inventories ahead of GST, and the turnaround in average WPI inflation weighed upon the manufacturing GVA growth during the quarter.

Rating agency Crisil said that the downward revision of gross value added (GVA) growth for the fourth quarter of last fiscal by 50 basis points to 5.6%, suggests that the impact of demonetisation on the economy was more than earlier estimated.

On the decline in real GDP growth, Crisil said, “The slowdown corroborates with corporate results for the first quarter, which had shown net profits declining for chunk of listed firms. The computation of GDP relies heavily on corporate data from the Ministry of Corporate Affairs database. The slowdown reflects sharp deceleration in exports of goods, and some moderation in consumption growth.”

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  1. R
    Rajeev
    Sep 1, 2017 at 2:43 pm
    The Liberalization of Indian Economy started by out great great PM Dr. P V Narsimha Rao and Dr. Manmohan Singh as a FM in his Cabinet presented the magic Budget which pave the way for IT, Heavy Industries and Manufacturing Sector a boost to put up money and also many Foreign Company invested in India thereby creating a Huge Potential for Job and sustainable Growth. This trend continue when Dr. Singh became PM and Mr. Chidambaram was FM. Before this Mr. Rajiv Gandhi as a PM started in the direction of IT Revolution which even today employ highest numbers of Techie across our Country. So in nut s whatever infrastructure and Growth we see around us is beacuse of these visionary PMs and bhata are still not able to come our of Demonetisation and GST which is otherwise brain Child of Mr. P Chidambaram. Now what Modi has done is crystal clear that he has send us 20 years back by destroying our Growing Economy by taking decisions without having proper know how of the subject
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    1. G
      g
      Sep 1, 2017 at 1:54 pm
      It came on the back of large-scale destocking undertaken by manufacturers ahead of the Goods and Services Tax rollout. Industry players said the uncertainty over the GST implementation did impact the numbers, growth is likely to pick up in the second half of the fiscal on the back of more rate cuts. The silver lining was the buoyant performance by some segments in the services sector.
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      1. J
        Jacob Daniel
        Sep 1, 2017 at 1:38 pm
        What happened to H-A-R-D W-O-R-D MODINOMICS ? Is it not working ?
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        1. R
          Rajeev
          Sep 1, 2017 at 1:27 pm
          Indian Economy is Collapsed because of iill Thought decision of Feku . Bhakta wake up high time we need three Dr. Manmohan Singh government to take care of India's Economic Health/. Its important to mention that Ten Years of Dr. Singh gave us an average GDP of 8.50 when the Old Reporting System was in place now with the New Reporting it 6.70 i.e. with the 3 additional point beacuse of change in system . So if you compare apple to apple the current GDP is 3-4 against 8.50 during Dr. Singh
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          1. G
            Geeta
            Sep 1, 2017 at 11:36 am
            BJP's spoke persons talk like s. Tomorrow, if they give birth to a child, they would blame Rahul or Congress! Often fools take action without weighing consequences in mind.
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            1. G
              George Cruz
              Sep 1, 2017 at 1:08 pm
              Converted Christians are blinded by their religion, falsely think that hey are secular/inclusive which they are NOT and are the biggest hypocrites.
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