The GDP growth of India slumped to a three-year low of 5.7 per cent during April-June as manufacturing slowed ahead of the GST launch amid demonetisation effect. The GDP growth was lesser than China which registered a record 6.9 per cent growth in January-March as well as April-June quarters. The expansion in gross domestic product (GDP) was 6.1 per cent in the preceding quarter and 7.9 per cent in the same period last fiscal. The previous low of 4.6 per cent was recorded in January-March 2014.
Demonetisation of high-value currency notes in November last year impacted economic activities in the January-March quarter as GDP growth slipped to 6.1 per cent and further to 5.7 per cent in the three months to June.
Gross value added (GVA) in the manufacturing sector also fell sharply to 1.2 per cent, from 10.7 per cent year on year, as the businesses focussed more on clearing inventories rather than production ahead of the July 1 launch of GST. A separate set of official data showed that growth of eight core sectors slowed to 2.4 per cent in July due to contraction in output of crude oil, refinery products, fertiliser and cement.
How industry reacted
India Inc expressed disappointment over fall in the GDP attributing it to GST and demonetisation. Industry chamber PHDCCI said ease of doing business remains a major concern as manufacturing firms, particularly labour intensive units, are impacted by various stringent laws and compliance costs. “Going ahead, the breakthrough in GST should also be followed by reforms in labour laws such as a single uniform labour law across the country,” PHDCCI President Gopal Jiwarajka said in a statement.
Assocham suggested that policymakers should take urgent steps to revive private investments. It also cautioned the government that further downward risks to the growth still prevail in the form of rising crude oil prices due to the Gulf crisis and inventory drawdown in the US. “Continuous fall in fixed investments, unsolved problem of bank’s NPAs, global policy and political risks, tightening financial conditions on account of deleveraging financial institutions and slowdown in real estate could weigh negatively,” it added.
Crisil’s D K Joshi too said the GDP number is “disappointing” as the expectation was that the growth would be 6.5 per cent. Former chief statistician Pranab Sen said it was expected that the first quarter GDP would be weak because of GST.
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.”
Opposition attacks govt
The Congress hit out at the Modi government over the slump in the country’s economic growth, and said the decline was because of the prime minister’s “reckless” decision of demonetisation. “The GDP numbers released for the (April-June) quarter confirms that the reckless decision of the prime minister on demonetisation and the policy defaults have led to a major crash in the Indian economy,” Congress senior spokesperson Anand Sharma said.
Congress in-charge of communications Randeep Surjewala said, “GDP growth slows from over 8 pc to 5.7 pc yet those living in glass houses of demonetisation disaster remain oblivious in their ivory towers.
Matter of concern, says Jaitley
Finance Minister Arun Jaitley admitted that the slump in GDP is a matter of concern. “Certainly a matter of concern that first quarter GDP has come down to 5.7 per cent and its obvious therefore throws up challenge for the economy,” said Jaitley adding that the GST could improve situation in future.
(With inputs from PTI)
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