Impact of GST, note ban behind us: Arun Jaitley on GDP growth

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Finance Minister Arun Jaitley said on November 30 that the impact of structural reforms is “behind us” and the early economic indicators point to an improvement.

NEW DELHI: Finance Minister Arun Jaitley on November 30 said the rise in the second quarter GDP (Gross Domestic Product) numbers “indicated that the impact of demonetization and GST are behind us” while adding that “an upward trajectory can be expected in the coming quarters.”
He also stated that the manufacturing sector is primarily the reason behind this growth and the movement should be up in the third and the fourth quarter too.
India’s GDP growth rate for the second quarter (July-September) of the current fiscal stood at 6.3 percent, government data showed on November 30 The latest figures bring forth reasons for cheer as the country’s GDP had been sliding for the last five quarters. The previous quarter’s (April- June) growth rate at 5.7 percent was at a three-year low . The GDP growth for the corresponding quarter last year stood at 7.5 percent.
The GVA (Gross Value Added) to the economy in the reporting quarter stood at 6.1 percent, up from 5.6 percent in the last quarter.
The growth rate was widely expected to bounce back as there were clear signs of the businesses coming out of slowdown caused by demonetization and the GST rollout. A Reuters poll of economists had predicted a growth rate of 6.4 percent, while various other institutions projected the rate between 5.9 percent and 7.1 percent.
The surge came mainly on the back of mining and manufacturing sectors. The mining industry jumped from a negative growth of 0.7 percent in last quarter to 5.5 percent this quarter. Similarly, manufacturing grew from 1.2 percent to 7 percent. However, some sectors like agriculture, financing & real estate and transport and hotels have slowed down.
After the figures were declared, Tushar Arora, senior economist of HDFC Bank said, ” The GDP number is exactly in line with our expectations. Upbeat corporate earnings results have been reflected in the manufacturing sector. As the revival continues, we are likely to keep the annual (GDP) forecast unchanged at 6.5 percent.”
Urjit Patel, governor of the Reserve Bank of India (RBI), had said last month that signs of an upturn were visible and growth was likely to top 7 percent.
Other indicators like passenger vehicle and tractor sales, industrial production, electricity generation and rail cargo have all accelerated in the past few months. Big companies have also largely adjusted to the changes while benefiting from reduced logistics costs. Prominent Indian firms had their best profit growth in last six quarters in July-September, according to Thomson Reuters data. According to the data, Indian companies’ total profits are expected to grow 25% in the next fiscal year, which would be the highest in Asia.
Anis Chakravarty, Lead Economist, Deloitte India said, “The latest set of numbers on growth for the second quarter show that activity levels were recovering from the disruption caused in the first quarter. Broadly the numbers are in line with expectations and the second half of the current year is expected to see a further improvement from these levels.”
However, concerns still remain on the consumption and private investment front which have failed to pick up despite the economy staging a comeback of sorts. Also, the finance ministry has been unsuccessful in convincing RBI for a cut in key policy rates. Analysts on the contrary say that rising global oil prices+ could pinch consumers through higher inflation and may instead force the RBI to hike the rates in the second half of 2018, denting growth momentum.
Speaking on RBI’s policy, Sumedh Deorukhkar, senior economist, BBVA, Hong Kong said, “We expect RBI to remain on pause in December and February, given upside risks to inflation as well as the fiscal deficit, exacerbated by rising oil prices and a gradually tightening global rates environment.”
In another set of data released on Thursday, the combined index of eight core industries in October, 2017 came to be 4.7 percent higher as compared to the index of October 2016. Its cumulative growth during April to October, 2017-18 was 3.5 percent.

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