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GDP growth hits three-year low of 5.7%, GST and demonetisation seen as major factors

As disruptions caused by demonetisation spilled over to the third straight quarter amid slowdown in manufacturing activities, India's economic growth slipped to a three-year low of 5.7 per cent in April-June

By: Express Web Desk | New Delhi | Updated: August 31, 2017 9:05:20 pm
GDP, GDP growth, gross domestic product, demonetisation, low GDP, india GDP, economic growth, economy news, india news This compares with revised growth of 7.9 per cent in the first quarter of 2016-17.

The economic growth of India slipped to a three-year low of 5.7 per cent in April-June as disruptions caused by demonetisation spilled over to the third straight quarter amid slowdown in manufacturing activities. According to the government data, the GDP had expanded by 6.1 per cent in the preceding quarter.

This compares with revised growth of 7.9 per cent in the first quarter of 2016-17.

As businesses destocked inventories ahead of the GST kick-off from July 1, gross value added (GVA) in manufacturing declined to a low of 1.2 per cent, from 10.7 per cent, year on year. Gross domestic product (GDP) growth in the first quarter of 2017-18 was lower than 6.1 per cent of the preceding one and 7.9 per cent in the same period last fiscal. China recorded 6.9 per cent growth in January-March as
well as April-June quarters.

Expressing concern on the GDP numbers, Finance Minister Arun Jaitley said manufacturing growth rate seems to have bottomed out as GST has been implemented and destocking of pre-GST stocks is almost complete. “… with GST now being operationalised, this would be
bottoming out as far manufacturing is concerned and probably the curve could turn up,” the minister told reporters.

Here are some reactions:

Anjali Verma, Economist, Phillipcapital Inida, Mumbai said, “The impact of demonetisation has faded, definitely. But the next quarter impact will be of GST (goods and services tax), which will have an adverse impact on growth overall. GST impact is just a one quarter phenomena, or at best one month after that. But then in the medium to long term it’s expected to be a positive. I would expect GDP for the full year will be somewhere closer to 6 percent. We don’t expect any rate cuts from here on. RBI will stay hooked on to inflation.”

Abheek Barua, Chief Economist, HDFC BANK, New Delhi said, “GDP numbers are certainly disappointing. The numbers seem to suggest that the slowdown from last quarter has intensified due to the combination of long-term slowdown and temporary shock factors like demonetisation and GST (goods and services tax) destocking. A rate cut from RBI now becomes more and more probable, not immediately, but over the next 6 months. We have to revise our GDP outlook numbers for the full year closer or perhaps lower than 7 percent.”

Indranil Pan, Group Economist, IDFC BANK, Mumbai said, “The downside impact from demonetisation is no longer going to be there. Going ahead growth will be driven by GST and the pace of cleaning banks’ balance sheets to improve the credit culture in the economy. In my opinion, the bank balance sheet problem will take a longer time than what others are expecting as it is not only cleaning the bad debt, but also improving capital base following mergers in the sector. There is a need to focus on the quality of growth rather than quantity, and for this we can afford to loosen our fiscal deficit target, spend more on investments rather than depend only on consumption to fuel growth.”

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