DeMo effect? GDP slides to 3-year low of 5.7%

India’s gross domestic product growth slumped to a three-year low of 5.7 per cent during April-June -- lagging China for the second straight quarter -- as manufacturing slowed ahead of the GST launch amid demonetisation effect.

China clocked a record 6.9 per cent growth in January-March as well as April-June quarters.

The expansion in gross domestic product 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.

Gross value added in the manufacturing sector 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.

Uncertainty about new indirect tax rates under GST prompted a host of industries, including carmakers, FMCG companies and garment manufacturers, to clear their stocks.

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.

Chief Statistician T C A Anant attributed the fall to the decline in inventories ahead of the rollout of GST as businesses re-labelled existing stocks and fashioned new ones in accordance with the new tax regime.

The drop in growth, he asserted, was not linked to note ban.

Anant further said that as companies took to GST, inventory has returned to normal levels which will help revive growth.

The data released by the Central Statistics Office came in below market expectations, which predicted it to be at least a tad higher than January-March growth figure of 6.1 per cent.

According to the data, there was a slowdown in the agricultural sector, too. GVA in the first quarter was 2.3 per cent compared to 2.5 per cent in the similar period last year.

Former chief statistician Pranab Sen said it was expected that the first quarter GDP would be weak because of GST.

“But, in my particular case, this is about 40 basis point lower than what I was considering. I would be looking at probably now sub-6.3 per cent for the full year,” he added.

Crisil’s D K Joshi termed the GDP number as “disappointing” as the expectation was that the growth would be 6.5 per cent.

Meanwhile, India’s fiscal deficit at July-end touched 92.4 per cent of the budget mainly because of front-loading of expenditure by various government departments. During the same period of 2016-17, it was 73.7 per cent of the target.

Economic activities that registered growth of over 7 per cent in the first quarter on an annual basis are trade, hotels, transport and communication and services related to
broadcasting, public administration, defence and other services and electricity, gas, water supply and other utility services.

Growth in agriculture, forestry and fishing, mining and quarrying, manufacturing, construction and financial, insurance, real estate and professional services is estimated to be 2.3 per cent, (-)0.7 per cent, 1.2 per cent, 2 per cent and 6.4 per cent, respectively, during this period.